Last Updated:
Sebi has released a set of six measures to strengthen the equity index derivatives, also known as F&O framework
SEBI Bhavan at BKC Bandra in Mumbai (PTI/ File Photo)
The Securities and Exchange Board of India (SEBI) has proposed six key measures to curb excessive speculation in the futures & options (F&O) segment, set to take effect on November 21, 2024. Originally planned to be implemented on November 20, 2024, the new rules will now come into force on November 21 due to a trading holiday.
Based on feedback from market participants and after a review by an expert working group and the secondary market advisory committee, Sebi has revised the minimum contract value to Rs 15 lakh from the previous range of Rs 5–10 lakh. This adjustment will impact the Lot Size of newly introduced F&O contracts, which will now fall within the Rs 15–20 lakh range.
Sebi’s October 1, 2024, circular specifies that derivative contracts will have a minimum value of Rs 15 lakh at the time of introduction, with the Lot Size fixed to ensure that the contract value remains between Rs 15 lakh to Rs 20 lakh during reviews.
Key Changes in Derivatives Trading:
1. Reduction of Weekly Expiries
Starting today, Sebi will reduce weekly expiries for index derivative contracts to one per benchmark index per exchange. This aims to curb speculative trading and limit risks tied to uncovered or naked option selling.
2. Increased Contract Sizes
The minimum contract value for derivatives will increase from Rs 5-10 lakh to Rs 15 lakh, encouraging investors to assume more appropriate levels of risk. Going forward, the contract value will be adjusted to range between Rs 15 lakh and Rs 20 lakh.
3. Higher Margin Requirements
To protect investors from extreme market fluctuations, Sebi will impose an additional extreme loss margin (ELM) of 2% on all open short options at expiry. This will enhance tail-risk coverage, especially during high-volume trading periods.
4. Upfront Collection of Premiums
Effective from February 1, 2025, brokers will be required to collect option premiums upfront. This change aims to discourage excessive intraday leverage and ensures investors have sufficient collateral to cover their positions.
5. Removal of Calendar Spread Benefits
The practice of calendar spreads—offsetting positions across different expiries—will be eliminated for contracts expiring on the same day. This move is intended to reduce speculative trading on expiry days.
6. Intraday Monitoring of Position Limits
Starting April 1, 2025, stock exchanges will begin monitoring position limits for equity index derivatives throughout the trading day. This will help prevent traders from exceeding position limits unnoticed.
Meanwhile, domestic stock markets are closed today in observance of the Maharashtra Assembly elections.
