The market regulator’s plans to introduce gross position limits for the derivative segment may result in job losses at proprietary firms and impact levies charged on such trades.

Large prop firms employ 500-1,000 people each and several of them may have to axe 20-30 per cent of their workforce once the new norms become a reality.

“Job losses are inevitable,” said the head of a broking firm, which does prop trading. “We have more than 2,500 people working on the prop desk. The capital we deploy will shrink by about 80 per cent if the gross position limits are applied.”

He added that these limits will discourage traders from hedging their positions, and limit margin deployment and capital use. “This is against the fundamental right of any trader, any FPI. If we have funds, we should be allowed to deploy them within the said margining system,” he said.

According to the proposals, the revised intraday limits for index options will be ₹1,000 crore on a net basis and ₹2,500 crore on a gross basis. The end-of-day limits will be ₹500 crore and ₹1,500 crore, respectively. Similarly, limits have been revised for index futures as well.

Some of the FPIs and large prop desks deploy ₹3,000-3,500 crore of capital in derivatives trading daily, of which a significant portion is in index options. This amount could shrink by a tenth, said market watchers.

“Traders will be penalised for doing low-risk trades under the new norms,” said the head of a large prop firm.

The gross delta limit of ₹2,500 crore, for example, will be reached if someone does a straddle of ₹11-12 lakh, he said. The capital or margin required to do this trade is about ₹350 crore.

A straddle involves buying both a call and a put option, allowing the trader to profit if the market rises or falls dramatically.

Hit on levies

Securities Transaction Tax (STT), GST and stamp duty collections could drop by 40-50 per cent if the move is implemented.

“Let’s assume that the F&O volume of prop firms and FPIs reduces by 50-70 per cent. This will result in a 65-70 per cent drop in total volumes on the exchanges. This means the STT collections could drop by a further 50 per cent from February levels,” said a broker.

The Centre has projected STT collections of ₹78,000 crore for 2025-26. The head of a top broker has estimated that STT revenues for FY26 could fall below ₹40,000 crore if the bearish market trend continued.