A stock enters F&O ban when the total market exposure in that stock exceeds 95% of the Market Wide Position Limit (MWPL). The ban lifts when the exposure falls below 80% of MWPL.
This prevents excessive speculation and maintains market stability when too many positions build up in a stock.
You can find the list of securities under the ban period on Zerodha's margin calculator.
What is Market Wide Position Limit (MWPL)?
MWPL is the maximum exposure allowed across all traders in a stock. Exchanges calculate this limit based on the stock's free float shares and trading volumes to ensure no single stock becomes over-leveraged.
How do exchanges measure market exposure?
Exchanges measure exposure using Future Equivalent (FutEq) open interest, which calculates the actual market impact of all positions.
Different positions have different market impacts:
- 1 lot of Futures has full impact on the stock price
- 1 lot of deep in-the-money Call option has nearly the same impact as Futures
- 1 lot of out-of-the-money Call option has much less impact
FutEq adjusts each position based on its delta (how much it behaves like the underlying stock) to measure the real market exposure.
Example of FutEq calculation
If you hold these positions in the same stock:
- 1 lot long Future = FutEq of +1 (full impact)
- 1 lot long Call with delta 0.5 = FutEq of +0.5 (half the impact of Futures)
- 1 lot long Put with delta –0.3 = FutEq of –0.3 (opposite direction, less impact)
Your total FutEq = +1 +0.5 –0.3 = +1.2
This gives a more accurate picture of your actual market exposure than simply counting three contracts.
What changed in the monitoring method?
- Earlier: Exchanges counted the total number of contracts (gross open interest) across all traders.
- Now: Exchanges calculate the total FutEq across all traders, which accounts for the actual market impact of each position.
The new method provides a more realistic measure of risk since options with lower delta have less impact on the stock price than Futures.
Did you know? The ban period does not apply to index F&O contracts.