Exchange regulator SEBI unveils 6 measures to bring changes in F&O speculation

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 remove the calendar spread treatment on expiry days.

The measures announced on Tuesday aim to raise entry barriers for retail participants and will be implemented in phases. Three of the six changes are set to take effect from November 20.

“It has been decided that a derivative contract shall have a value not less than Rs 15 lakh at the time of its introduction in the market. 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 Rs 20 lakh,” said Sebi in the circular. This marks the first revision of contract size in nine years.

Furthermore, Sebi will impose an additional extreme loss margin (ELM) of 2 percent for short options contracts, effective November 20. “This would be applicable for all open short options at the start of the day, as well as on short options contracts initiated during the day that are due for expiry on that day.

For instance, if the weekly expiry on an index contract is on the 7th of a month and other weekly/monthly expiries on the index are on the 14th, 21st, and 28th, then for all the options contracts expiring on the 7th, there would be an additional ELM of 2 percent on 7th,” noted Sebi.