Futures And Options Reform: SEBI Increases Contract Size And Monitoring Measures - Details

SEBI is implementing key reforms to enhance the stock index derivatives framework, effective February 1, 2025. The changes include mandatory upfront payment for option premiums, increased minimum contract size to Rs 15 lakhs, intraday monitoring of position limits, and a 2% extreme loss margin on short options contracts to mitigate risks.
SEBI's New Measures On F&O

SEBI's New Measures On F&O (Image Source: iStockphoto)

The Securities and Exchange Board of India (SEBI) has announced significant modifications to strengthen the stock index derivatives framework, with a focus on futures and options (F&O) expiry.
The new laws, which will go into effect on February 1, 2025, compel users to pay upfront for choice premiums. This step is aimed to reduce excessive intraday leverage and ensure that investors have adequate collateral. Furthermore, the benefit of calendar spread treatment would be lost on expiry days, lowering the risks linked with major market fluctuations. This move is intended to reconcile margin standards with cross-margin frameworks, lowering systemic risk.
SEBI will also implement intraday monitoring of position limits starting April 1, 2025, requiring stock exchanges to conduct a minimum of four random position snapshots throughout the trading day. This initiative is intended to prevent breaches of permissible position limits during the volatile trading sessions typical of expiry days.
Furthermore, the minimum contract size for index derivatives will be increased to ensure suitability for market participants, with new contracts introduced after November 20, 2024, needing a value of at least Rs 15 lakhs. SEBI is also rationalising the weekly index derivatives products offered by exchanges, allowing only one benchmark index with a weekly expiry per exchange, in order to reduce excessive trading.
According to SEBI's circular, "The current stipulation is for such contracts to have a value between Rs. 5 lakhsand Rs. 10 lakhs. This limit was last set in 2015. Since then, broad marketvalues and prices have increased by around three times.Given this, it has been decided that a derivative contract shall have a value not less than Rs. 15 lakhs 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 lakhs toRs. 20 lakhs."
To offset tail risks connected with options expiry, an additional 2% extreme loss margin will be imposed on short options contracts beginning November 20, 2024.
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Arjit Saxena author

Arjit Saxena is a Senior Correspondent at ET NOW and Times NOW Business Section. He writes on Stock Market, Economy, Startups, Corporates, and Persona...View More

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