The Securities and Trade Board of India (SEBI) has introduced in a brand new set of pointers in a bid to manage high-risk futures and choices (F&O). On Tuesday, the market regulator stated will probably be implementing pointers starting from rising the contract measurement to Rs 15 lakh from Rs 5-10 lakh to restrict weekly expiries to 1 per change.
As per the newest F&O guidelines, the by-product contract worth can’t be lower than Rs 15 lakh. “All different stipulations for contract measurement of index derivatives as talked about within the Grasp Round referred above shall stay unchanged… The measure shall be efficient for all new index derivatives contracts launched after November 20, 2024,” SEBI stated in its notification.
The implementation of up to date pointers for by-product buying and selling will happen in a number of levels, commencing on November 20 and relies on recommendations by an Skilled Working Group (EWG) to strengthen the fairness index derivatives framework.
From November 20, new options equivalent to index by-product contracts with weekly expiries, bigger contract sizes, and enhanced safety in opposition to tail dangers by means of the imposition of further Excessive Loss Margin (ELM) will likely be launched.
High factors
1. Upfront assortment of Choice premium: February 2025
Choices costs transfer in a non-linear method and carry very excessive implicit leverage. “With the intention to present adequate time to implement the aforesaid measure, this requirement could be relevant for fairness derivatives section from February 01, 2025,” SEBI stated in a round.
2. Elimination of calendar unfold therapy on expiry day: February 2025
Given the comparatively giant volumes witnessed on the expiry day vis-à-vis future expiry days, and the improved foundation danger that it represents, it has been determined that the good thing about offsetting positions throughout completely different expiries (‘calendar unfold’) shall not be out there on the day of expiry for contracts expiring on that day.
“This may additionally align calendar unfold therapy with a cross-margin framework on correlated indices having completely different expiries, whereby such cross-margin profit is absolutely revoked at the beginning of the primary of the expiring correlated indices,” Sebi stated.
3. Intraday monitoring of place limits: April 1, 2025
Sebi had instructed inventory exchanges to watch present place limits for fairness index derivatives as there’s a danger of positions being created past permissible limits amid big volumes on expiry day.
“For this function, inventory exchanges shall think about minimal 4 place snapshots in the course of the day. The variety of snapshots could also be determined by the respective inventory exchanges topic to a minimal of 4 snapshots in a day,” the regulator stated.
To supply adequate time for implementation, the measure shall be efficient for fairness index derivatives contracts from April 1, 2025.
4. Contract measurement for index derivatives: November 2024
With impact from November 20, 2024, Sebi has elevated the minimal contract measurement for index futures and choices from Rs 5-10 lakh at the moment to Rs 15 lakh on the time of its introduction available in the market.
Additional, the lot measurement shall be fastened in such a way that the contract worth of the by-product on the day of evaluate is inside Rs 15 lakh to Rs 20 lakh, the regulator stated.
“Given the inherent leverage and better danger in derivatives, this recalibration in minimal contract measurement, in tune with the expansion of the market, would be sure that an inbuilt suitability and appropriateness standards for members is maintained as supposed,” Sebi stated.
5. Limiting weekly index expiry to 1 per change: November 20
Dalal Avenue will eliminate the one-expiry-a-day phenomenon, which has been blamed for rising the speculative exercise available in the market.
To unravel the issue of extreme buying and selling in index derivatives on expiry day, it has been determined to rationalise index derivatives merchandise supplied by exchanges which expire on a weekly foundation. With impact from November 20, 2024, weekly derivatives contracts would solely be out there on one benchmark index for every change.
Which means that BSE and NSE should select one index by-product product every for weekly expiry contracts.
6. Improve in tail danger protection
Given the heightened speculative exercise round choices positions and the attendant dangers, Sebi has determined to extend the tail danger protection by levying a further ELM (excessive loss margin) of two% for brief choices contracts.
This may be relevant for all open quick choices at the beginning of the day, as properly on quick choices contracts initiated in the course of the day which might be due for expiry on that day. As an illustration, if weekly expiry on an index contract is on seventh of the month and different weekly/month-to-month expiries on the index are on 14th, twenty first and twenty eighth then, for all of the choices contracts expiring on seventh, there could be a further ELM of two% on seventh.
Based mostly on a current examine by Sebi, particular person merchants in India skilled internet losses amounting to Rs 1.81 lakh crore in futures and choices buying and selling from April 2021 to March 2024, with solely 7.2% managing to make a revenue.
In the identical timeframe, retail traders incurred gross losses of Rs 524 billion, whereas proprietary merchants representing monetary establishments and international traders achieved gross income of Rs 330 billion and Rs 280 billion, respectively, for the 12 months main as much as March 30, 2024.
Disclaimer: Enterprise In the present day supplies inventory market information for informational functions solely and shouldn’t be construed as funding recommendation. Readers are inspired to seek the advice of with a certified monetary advisor earlier than making any funding selections.
