The Securities and Exchange Board of India (SEBI) has proposed six key measures to curb excessive speculation in the futures and options (F&O) segment, effective from November 21, 2024. The new rules will now come into effect from November 21 due to the trading holiday.
Based on feedback from market participants and after review by the Expert Working Group and the Secondary Market Advisory Committee, SEBI revised the minimum contract value from the earlier Rs. 5-10 lakh range revised to Rs. 15 lakh has been done. This adjustment will affect the lot size of newly introduced F&O contracts, which are now Rs. Will come in the range of 15-20 lakhs.
SEBI’s October 1, 2024 circular specifies that the minimum value of a derivative contract at the time of introduction is Rs. 15 lakhs, out of which the contract value during review will be Rs. 15 lakh to Rs. The lot size will be fixed to ensure that it stays between 20 lakhs.
Major Changes in Derivatives Trading:
1. Reduction in Weekly Expiration
From today, SEBI will reduce the weekly expiry of index derivative contracts by one per exchange per benchmark index. The objective is to curb speculative trading and limit the risks associated with uncovered or naked option selling.
2. Increase the size of the contract
Minimum contract value for derivatives is Rs. 5-10 lakhs to Rs. 15 lakhs, which will encourage investors to assume more appropriate levels of risk. Going forward, the contract value is Rs. 15 lakhs and Rs. 20 lakhs will be arranged in the range between.
3. High 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 the time of expiry. This will increase tail-risk coverage, especially during high-volume trading periods.
4. Upfront collection of premium
Effective February 1, 2025, brokers will be required to collect option premiums in advance. The change aims to discourage excessive intra-day leverage and ensure that investors have adequate collateral to cover their positions.
5. Eliminating calendar spread benefits
The practice of calendar spreads—offsetting positions at different expirations—will be eliminated for contracts that expire on the same day. The move is aimed at reducing speculative trading on the expiry day.
6. Intraday monitoring of position limits
From April 1, 2025, stock exchanges will start monitoring position limits for equity index derivatives throughout the trading day. This will help prevent traders from exceeding position limits.
Meanwhile, domestic stock markets are closed today in view of the Maharashtra assembly elections.