One thing many people don’t realise about the broking business

[nithin]

@Sanjeevkumar_M

Its basically delta notional right? If yes, then its absolute or net sum?

if its net sum, most of the traders should sit on the same side to breach that. Do you think that happens? I feel its less likely.

This delta-based OI has been a recent change; earlier, it was notional. While today a trader’s limits are based on delta, the broker’s limits are still not based on delta.

Until delta-based OI was brought in, people were essentially taking a lot of positions in deep OTM calls or puts to get around this Rs 500 cr limit.

[nithin]

@nithin

What has made it tougher is that on a per client there is a max OI of Rs 1500 cr (it was Rs 500 cr until sometime back). That means even if you are hedge fund, you can’t take positions beyond this or there is a penalty. So the overally OI in the ecoystem also reduces.

There is no penalty, @Meshak_T corrected me.

meshak

4:57 PM

Hi sir, good evening

If a client breaches net delta of 1500CR, there is no penalty, but a additional surveillance deposit(ASD) will be blocked for 1 month.

https://nsearchives.nseindia.com/content/circulars/SURV71673.pdf

[BB789]

How close are you to breaching broker OI limits? Earlier a lot of strikes were blocked. These few years not so much…

[jugador]

@nithin

but OI yes, especially the clearing corp calculating the OI the same way irrespective of if you buy or sell, if you buy ITM or deep OTM. Our biggest issue is with customers buying OTM options and then holding it overnight.

@nithin
I believe SEBI set the 15% OI limit after careful consideration.
Since buying ITM or deep OTM options and holding them overnight habits are the same across the industry, why is only zerodha struggling to stay within SEBI’s 15% OI threshold?

There must be more to the story…, so matter of investigation/discussion.

[amitskale]

Don’t know the truth but Zerodha’s explanation about people not able to buy otm options due to OI over shooting was never convincing. Even during those times people as the questions about why other brokers were not facing that issue on which no convincing explanation was given…

[Funancee]

@nithin

This is actually the first time I’m hearing about the 15% OI limit per broker.

I tried digging into this a bit more but couldn’t find any clear limitations for exchanges around concentration risk. NSE today handles most of the derivatives volume and a large share of cash market as well.

And how did the market structure evolve to a point where we effectively have only two exchanges, with one dominating most segments?

I read this as well - https://www.moneycontrol.com/news/business/markets/f-o-expiry-on-tuesday-or-thursday-here-s-why-the-trading-day-matters-13102477.html/amp

[Ragavendran_M]

Most of the days we were around 13 to 15% of overall OI across index so only we are not imposing any range restrictions like before.

[nithin]

@jugador

I believe SEBI set the 15% OI limit after careful consideration.
Since buying ITM or deep OTM options and holding them overnight habits are the same across the industry, why is only zerodha struggling to stay within SEBI’s 15% OI threshold?

There must be more to the story…, so matter of investigation/discussion.

@amitskale

Don’t know the truth but Zerodha’s explanation about people not able to buy otm options due to OI over shooting was never convincing. Even during those times people as the questions about why other brokers were not facing that issue on which no convincing explanation was given…

Why would we (a broker) not want our customers to trade? Habits are the same across the industry; we have a problem due to our size.

[nithin]

@Funancee

This is actually the first time I’m hearing about the 15% OI limit per broker.

I tried digging into this a bit more but couldn’t find any clear limitations for exchanges around concentration risk. NSE today handles most of the derivatives volume and a large share of cash market as well.

And how did the market structure evolve to a point where we effectively have only two exchanges, with one dominating most segments?

I read this as well - https://www.moneycontrol.com/news/business/markets/f-o-expiry-on-tuesday-or-thursday-here-s-why-the-trading-day-matters-13102477.html/amp

I suppose that if you had traded index F&O with us from 2020 to 2024, you would have been aware of this.

Yes, while the regulation applies to all brokers regarding concentration risk, SEBI is okay with concentration being with the exchanges, I suppose.

https://nsearchives.nseindia.com/content/circulars/SURV67436.pdf

[jugador]

Ok, so in short;
when asked about size get answered it’s about habit.
when asked about habit get answered it’s about size.

[Rockytrader]

@jugador

when asked about size get answered it’s about habit.
when asked about habit get answered it’s about size.

Very difficult to understand . Can you simplify?