With the objective of improving market stability and protecting small investors, the Securities and Exchange Board of India (Sebi) has introduced many additional measures to fortify the index derivatives framework.The Indian equities derivatives trading market is expected to change significantly with the implementation of these regulations, especially for retail participants.
New SEBI rules on F&O trade
There are the following new SEBI rules on F&O trade;
- Index derivative contract weekly expiries will be limited by Sebi to one per benchmark index per exchange as of November 20, 2024. As a result, exchanges will no longer offer the full 18 weekly contracts every month; instead, they will only offer six.
- The intention is to reduce the risks involved in selling uncovered or naked options and to stop speculative trading.
- From the present range of Rs 5-10 lakh, the minimum trading amount for derivatives would increase to Rs 15 lakh.
- In order to guarantee that investors engage in the derivatives market with the right amount of risk, this increase has been implemented. According to Sebi, the contract amount will eventually be modified to fall between Rs 15 lakh and Rs 20 lakh.
- Sebi will apply an additional extreme loss margin (ELM) of 2% for all open short options on the day of expiry in order to mitigate the significant volatility that is seen on expiry days. The goal of this precaution is to shield investors against abrupt market swings, especially during periods of heavy trading activity.
- Brokers will have to collect option premiums upfront as of February 1, 2025. This change is intended to ensure that investors have enough collateral to cover their holdings and to discourage them from using excessive intraday leverage.
- For contracts expiring on the same day, the long-standing practice of calendar spreads—offsetting holdings across different expiries—will be discontinued. The goal of this modification is to lessen the possibility of speculative trading, which has been very common on expiry days.
- Stock exchanges will start monitoring intraday position limits for equity index derivatives on April 1, 2025. As a result, there will be multiple checks of position limits throughout the trading day, lowering the possibility that traders may exceed allowed limits without being detected.
Impact of new SEBI rules on F&O trade in trading strategies
In light of these new regulations, retail investors will need to review their trading strategy, paying particular attention to how they handle margin obligations and when rollovers occur. To put it plainly, Sebi’s recent actions to strengthen the regulations pertaining to equities derivatives are a testament to the regulator’s dedication to safeguarding small investors and upholding the integrity of the market.Even if some retail participants may find these changes difficult, their ultimate goal is to promote a more stable and long-lasting trading environment.
