Ban period

Every stock available for derivatives trading has a ceiling on how much open interest the whole market is allowed to build up in it, called the Market Wide Position Limit. This ceiling exists so that no single stock's derivatives market gets so large that it becomes vulnerable to manipulation of the much smaller underlying cash market.

When open interest gets close to that ceiling, the exchange does not wait for a breach. It puts the security into a ban period. During a ban, new trades that would increase anyone's position are simply not allowed. Only trades that reduce an existing position go through.

The workbook (Chapter 4, section 4.1.2.4) explains that the Market Wide Position Limit (MWPL) for a single stock is the lower of 15% of free float and 65 times Average Daily Delivery Value (ADDV) across clearing corporations, subject to a floor of 10% of free float.

Once the market-wide Open Interest for a scrip exceeds 95% of its MWPL, the security enters the ban period: members and clients may trade only to decrease their positions, through offsetting trades. SEBI has clarified that a passive increase in position — caused only by movement in the underlying price (delta), not by a fresh trade — is not treated as a breach of this rule.

Ban periods are monitored by exchanges and clearing corporations at the end of each day, and, for index derivatives, exchanges also run intraday monitoring, including a minimum of four random snapshots during the trading day, to catch positions that breach limits within the session.

A mid-cap company's stock has a Market Wide Position Limit, calculated by the exchange, of 80,00,000 shares in open interest across all its derivative contracts.

On a given day, the market-wide open interest reaches 77,00,000 shares — that is 96.25% of the 80,00,000 MWPL, above the 95% threshold.

The stock enters the ban period. A trader who already holds a long futures position of 5,000 shares can still sell to reduce that position, but cannot enter a fresh long position that would increase overall open interest. Another trader with no position at all cannot open a new one either, unless it is structured to offset an existing position.

Suppose the stock's price then rises sharply and its delta-adjusted exposure grows without any new trade being placed. SEBI's clarification means this passive increase is not treated as a violation of the ban-period restriction, because no fresh trade caused it.

Chapter 4 (Risk Management, section 4.1.2.4, Position and Exposure Limits) covers MWPL and the ban period together, and it is one of the chapter's own sample questions: "Once the market wide Open Interest for any scrip exceeds ___ of the MWPL for the scrip... this is called ban period," with 95% as the correct answer against 80% and 90% distractors.

• The threshold is 95% of MWPL, not 80% or 90% — both appear as wrong options in the workbook's own sample question.
• MWPL is the lower of 15% of free float and 65x ADDV, with a 10% of free float floor. Do not drop the floor when computing it.
• Ban period restricts fresh position-increasing trades, not all trading. Positions can still be reduced or squared off.
• A passive increase from price movement alone is not a violation — only a new position-increasing trade is.
• Do not confuse the ban period (a market-wide open-interest control) with a trading halt caused by a circuit filter, which is a price-movement control on the whole market, not a single scrip's derivatives position.