INSUBCONTINENT EXCLUSIVE:
4 min read Last Updated : Oct 02 2024 | 12:26 AM IST
The Securities and Exchange Board of India (Sebi) announced on Tuesday six key
changes to the index derivatives trading framework, aimed at curbing excessive speculation amid growing concerns about the mounting losses
incurred by individual traders.
The measures include increasing the contract size from Rs 5 lakh to Rs 15 lakh, raising margin
requirements, and mandating the upfront collection of option premiums from buyers
Additionally, the new rules will limit weekly expiries to one benchmark per exchange, bring intraday monitoring of position limits, and
93 per cent of retail traders sustained losses amounting to Rs 1.8 trillion in the futures and options (F&O) segment over the past three
Concerns over household losses in this speculative segment -- which has seen its average daily turnover go past the Rs 500 trillion mark --
have been voiced by various financial regulators and stakeholders, including the Reserve Bank of India (RBI) and the chief economic
advisor.
In response, the markets regulator issued a consultation paper in July outlining the proposed measures, which were subsequently
reviewed by an expert working group and the secondary market advisory committee.
The measures announced on Tuesday are aimed at raising
the entry barriers for retail participants and will be implemented in phases, with three of the six changes set to take effect from November
Further, the lot size shall be fixed in such a manner that the contract value of the derivative on the day of review is within Rs 15 lakh to
This marks the first revision of contract size in nine years.
Regarding the limitation of weekly expiries per exchange to one benchmark,
Sebi highlighted that the hyperactive trading in index options on expiry days poses risks to investor protection and market stability
without providing any discernible benefits for capital formation
As a result, the National Stock Exchange (NSE) is expected to retain only weekly expiries of Nifty, while its peer BSE may only hold weekly
expiries for Sensex, thus removing the current trend of one expiry daily.
Furthermore, Sebi will impose an additional extreme loss margin
(ELM) of 2 per cent for short options contracts, effective November 20
that are due for expiry on that day
markets watchdog has also mandated that brokers (trading members) collect option premiums upfront from buyers to prevent undue intraday
leverage and discourage the practice of allowing positions that exceed the collateral at the trader level
Additionally, stock exchanges have been instructed to monitor position limits for equity index derivatives on an intraday basis, with these
limits designed to prevent large traders from manipulating the market
This requirement will be effective from April 2025.
However, the proposal to rationalise option strikes did not make it into the final
circular.
Sebi officials previously indicated that these changes are intended as short-term measures, with the possibility of additional
steps to curb speculation being developed in the future
