On 3 Jul 2025 a whole time member of SEBI signed an interim order in the matter of index manipulation by a proprietary trading group. The order is ex parte, which means made without first hearing the entities, and its findings are prima facie, which means on the material then on record. It directed that Rs 4,843.57 crore be put in an escrow account and gave the entities 21 days to reply. Before and after it, SEBI issued circulars on position limits, intraday monitoring and the way an index option is settled. This lesson reads the order and the circulars as written, in date order, and keeps allegation apart from finding. It then lists what is still pending. It takes no side, it is not legal advice, and it names no outcome that the documents do not name.
3By the end you can
- State what the 3 Jul 2025 order directs and why its findings are interim and prima facie.
- Give the index option limits of May and Sep 2025 and the three settlement regimes of 2026.
- List what is pending and keep allegation apart from finding.
The idea, plainly
Why does expiry day carry integrity risk?
An index option at expiry pays off against one number, the settlement value of the index. Anyone who holds a large option position on that day has an interest in where that number lands, and the index is built from the prices of its constituent stocks, which trade in a far smaller market than the options on them. The order's own explainer says that on expiry day the volumes and participation in index options are far higher than in the constituent stocks and futures. That gap between a deep derivative and a thinner underlying is the setting for the concern, and it is why the rules below are about the settlement price, the size of positions and who watches both. It is not a statement that any trade is improper.
What does the interim order say?
The order is dated 3 Jul 2025, signed by Ananth Narayan G. as whole time member, under sections 11(1), 11(4), 11B(1) and 11D of the SEBI Act. It names four entities as a group. Using NSE data for the examination period from 1 Jan 2023 to 31 Mar 2025, it records a total profit of Rs 36,502.12 crore across all segments, made of Rs 43,289.33 crore from index options and combined losses of Rs 7,687.21 crore in stock futures, index futures and cash. BANKNIFTY options alone gave Rs 17,319.26 crore, 40% of the index options profit.
The interim order sits at the end of a year of steps and the start of a process
- NSE asked to examine
The first step in the order's chronology
- NSE report
NSE submits its examination report
- Caution letter
NSE advises the group to refrain from large cash equivalent positions
- Positions continue
The order records large positions in index options after the caution
- Interim order
Prima facie findings, impounding and restraint, 21 days to reply
- Escrow credited
SEBI press release PR 40/2025: credited without prejudice to the entities' rights
- Restrictions cease
SEBI press release PR 45/2025 on para 62.11; cease and desist and monitoring continue
The term this section turns on: Prima facie
Read 2 more paragraphs, 249 words
From those figures SEBI shortlisted the most profitable days, kept the expiry days among them and analysed 18 days in detail. It describes two strategies, which it calls intraday index manipulation and extended marking the close. The first it saw on 15 of the 18 days and the second on the other 3. Its sample day is 17 Jan 2024, on which it records a profit of Rs 734.93 crore. On that day the order says the group bought Rs 4,370.03 crore of BANKNIFTY constituents in the cash and futures markets in the morning while building bearish option positions of Rs 32,114.96 crore, 7.3 times the size of the purchase, and then sold the purchases later in the day. These are the order's descriptions of what it observed, and its conclusion that the pattern was manipulative is prima facie.
The directions, in paragraph 62, are of four kinds. The first is the impounding of Rs 4,843.57 crore, said to be the gains from the alleged violations on 21 days, into an escrow account with a lien in favour of SEBI. The second is a bar from the securities market and a freeze on accounts. The third is a direction to cease and desist from the patterns named. The fourth is a direction to the exchanges to monitor the group's dealings. Paragraph 62.11 says that most of the restrictions cease once the escrow money is deposited. Paragraph 63 gives 21 days to reply and to ask for a hearing.
What happened afterwards, on the record?
SEBI's press release of 14 Jul 2025 says the entities informed it that the amount had been credited to the escrow account, and that they did so without prejudice to their rights and remedies in law. Its release of 21 Jul 2025 records that under paragraph 62.11 the bar and the other restrictions ceased to apply on the deposit, and that the directions to cease and desist and to the exchanges to monitor continue until the investigation and any proceedings are complete. Those two releases are what is on the record. A final order, if there is one, will say more.
What did SEBI change about positions?
Four circulars, in order. SEBI's circular of 1 Oct 2024 set an extra extreme loss margin of 2% on short options expiring that day from 20 Nov 2024 and removed the calendar spread benefit on expiry day from 1 Feb 2025. The circular of 28 Mar 2025 began intraday monitoring of the existing limits from 1 Apr 2025 and said breaches carry no penalty until further directions. The circular of 29 May 2025 moved to futures equivalent open interest, which counts each option at its delta, and set limits for index options per PAN: a net end of day limit of Rs 1,500 crore and a gross limit of Rs 10,000 crore on each side, phased in from 1 Jul 2025 with the normal regime from 6 Dec 2025. The circular of 1 Sep 2025 added an intraday limit for index options: net Rs 5,000 crore and gross Rs 10,000 crore on each side, from 1 Oct 2025.
The net intraday limit is 3.33 times the net end of day limit
Read 2 more paragraphs, 173 words
The intraday limits are checked, in the circular's words, by a minimum of 4 random snapshots in the day, one of them between 2:45 and 3:30 pm. The exchanges use the underlying price at the time of each snapshot. An entity may take additional exposure against holdings of securities or cash. A breach leads the exchange to ask for the rationale and to look at trading in the constituents, and, on an expiry day, to a penalty or additional surveillance deposit from 6 Dec 2025. The framework covers index options only. The circular says in paragraph 4.8 that it is meant to leave market making free on all days while checking outsized expiry day positions.
The limits were set after a consultation. SEBI's paper of 24 Feb 2025 had proposed lower numbers: Rs 500 crore net and Rs 1,500 crore gross at end of day, and Rs 1,000 crore net and Rs 2,500 crore gross intraday. What the circulars adopted is higher. The table in the circular of 1 Sep 2025 records both.
How is an expiring index option settled, and when does that change?
The settlement price is where manipulation would pay, so it has been rewritten. Three regimes are in play and each lesson must say which it means.
- Before 3 Aug 2026. The closing value of the index, with each stock's close the VWAP of the last 30 minutes of continuous trading. Source: SEBI circular of 16 Jan 2026, on the closing price and settlement.
- 3 Aug 2026 to 6 Dec 2026. The closing value of the index, with the stock closes set by the closing auction. Source: the same circular, on the closing price, settlement and timeline.
- From 7 Dec 2026. An index value computed from the VWAP of the constituents over the last 30 minutes of continuous trading, and the expiring index contract stops trading at 3:30 pm. Source: SEBI circular of 15 Oct 2026, on timings and settlement.
The settlement price changes twice in 2026, on 3 Aug and on 7 Dec
Read one more paragraph, 96 words
The circular of 15 Oct 2026 also moves the closing auction to 3:30 to 3:40 pm, with a random close between 3:38 and 3:40 pm, and requires the exchanges to publish an indicative index value in real time through the last 30 minutes. In the words of the circular the auction was introduced for transparent and efficient price discovery of the close, and the settlement change followed a review of it. Whether the new rule changes behaviour on expiry day is a question for data after 7 Dec 2026, and this lesson does not predict it.
Worked example: reading one number
Take the net intraday limit of Rs 5,000 crore. Divide by what one lot of the Nifty future is worth at the 23,118.60 close of 15 Sep 2026, 65 units times that level, and you get about 33,273 lots of futures equivalent. That is the largest net exposure the circular lets one entity carry at a snapshot. It is a statement about size and not about intent: a large position held for a hedge is a different thing from one built and unwound in a pattern. The circular's own answer to that difference is process. Exchanges ask for the rationale, look at the entity's trading in the constituents and discuss the case with SEBI. A limit is a tripwire, and what follows it is a question.
Read one more paragraph, 69 words
The same arithmetic shows how the order's figures should be read. The sample day has a bearish option position of Rs 32,114.96 crore against a purchase of Rs 4,370.03 crore, in the order's account. The ratio, 7.3, is the point of the allegation, not the size of either number. Reading it needs the delta of every option, which is why the futures equivalent measure of May 2025 exists.
What is pending?
- The investigation and any final order. The interim order says it holds pending a detailed investigation. As checked on 16 Oct 2026 for this lesson, sebi.gov.in showed no confirmatory or final order in the matter.
- Any appeal. Press reports describe an appeal before the Securities Appellate Tribunal. I have not seen the tribunal's own record, so this lesson states no outcome and no date.
- Limits for trading members. SEBI issued a consultation paper on 4 Dec 2025 on position limits for trading members in equity derivatives. No final circular was found.
- The 15 Oct 2026 circular. Its changes take effect from 7 Dec 2026, and paragraph 4.8 on iceberg orders from 8 Feb 2027.
- A later SEBI order. An ex parte interim order dated 19 Aug 2026 on trading in the closing auction of the 13 Aug 2026 SENSEX expiry is listed on sebi.gov.in. I have not read the order, and nothing in this lesson describes its contents.
Try it yourself
Open the interim order and the circular of 1 Sep 2025. In the order, read the background for the chronology, then the table of profits and the examination period, then the directions and the paragraph that gives time to reply. In the circular, read the paragraphs on the framework. For each document write its date, who issued it, whether it is a finding or a rule, and one sentence of what it does. Then lay the dates on one line and mark the points where a rule changed after an event.
The common mistake
The belief: SEBI has found the group guilty of manipulating the index.
The order of 3 Jul 2025 is an interim, ex parte order whose findings are prima facie. It directed the escrow of a sum as alleged gains, gave the entities time to reply, and its restrictions mostly ceased on the deposit, which the entities made without prejudice to their rights. No final order is on the SEBI site as checked. The opposite belief, that the matter is closed because the money was paid, is wrong in the same way. Read the document and its date, say whether it is an allegation, a direction or a finding, and say what is pending. Rules that came after it, such as the intraday limits and the new settlement, stand on their own and do not depend on how the matter ends.
Key takeaways
- The 3 Jul 2025 order is interim, ex parte and prima facie.
- Most restrictions ceased on the escrow deposit under paragraph 62.11.
- Intraday index option limits sit above the end of day limits, from 1 Oct 2025.
- Limits are measured in futures equivalent terms, counting options by delta.
- Settlement changes on 3 Aug 2026 and again on 7 Dec 2026.
- No final order was on the SEBI site on 16 Oct 2026.
Two terms to hold on to from 19.15
Where this section sits in module 19.15
Before you trade. Derivatives trading carries a high risk of loss. SEBI's study "Profitability of Individual Traders in the Equity Derivatives Segment (FY25 to FY26)" (August 2026) found that 87.7% of individual traders in equity F&O made net losses in FY26, with aggregate net losses of Rs 91,685 crore. Read the SEBI study