Securities and Exchange Board of India (Sebi) has been quite active in the recent past to improve stability in the market and protect retailer investor’s interest. Last month, the capital markets regulator made at least six changes in a single go to strengthen the equity futures & options (F&O) segment and half of these will come into effect starting November 20 (Wednesday), 2024. And, those measures are recalibration of contract size for derivatives, rationalisation of weekly index derivatives and increase in tail-risk coverage on the day of options expiry.
Here’s a brief look at the key changes in derivatives trading:
* Reduction of weekly expiries
From today, Sebi will reduce the number of weekly expiries for index derivative contracts to one per benchmark index per exchange. The aim is to curb speculative trading and limit the risks associated with uncovered or naked option selling.
* Increased contract sizes
The minimum trading amount for derivatives will rise from the current range of Rs 5–10 lakh to Rs 15 lakh. This increase aims to ensure that investors take on appropriate risks while participating in the derivatives market. Sebi has stated that the contract value will be adjusted to fall between Rs 15 lakh and Rs 20 lakh in the future.
* Higher margin requirements
To increase tail-risk coverage, Sebi will implement an additional extreme loss margin (ELM) of 2 per cent for all open short options on the day of expiry. This measure is intended to protect investors from extreme market fluctuations, particularly during high-volume trading sessions.
* Upfront collection of premiums
This change will be effective from February 1, 2025. Brokers will be required to collect option premiums upfront. This shift is aimed at discouraging excessive intraday leverage among investors and ensuring that they have sufficient collateral to cover their positions.
* Removal of calendar spread benefits
The long-standing practice of calendar spreads — offsetting positions across different expiries — will be eliminated for contracts expiring on the same day. This change is intended to reduce the potential for speculative trading that has been rampant on expiry days.
* Intraday monitoring of position limits
From April 1 next year, stock exchanges will begin intraday monitoring of position limits for equity index derivatives. This means that position limits will be checked multiple times throughout the trading day, reducing the risk of traders exceeding permissible limits unnoticed.
Meanwhile, domestic benchmarks are closed today on account of Maharashtra Assembly elections.
