SEBI Tightens Rules for Derivatives Trading

The Securities and Exchange Board of India (SEBI) has announced changes to strengthen its Futures & Options (F&O) and equity derivatives trading framework.

These new rules are set to be implemented in phases, starting from November 20, 2024. The changes aim to bring more transparency and mitigate risks associated with trading derivatives.

Here’s a breakdown of SEBI’s latest measures.

Key Changes in SEBI’s Derivatives Regulations

1. Minimum Derivatives Contract Value Raised SEBI has increased the minimum value for derivative contracts from ₹5 lakh to ₹15 lakh. This change will come into effect from November 20, 2024, as part of SEBI’s broader efforts to align the F&O market with global standards.
2. New Weekly Options Contract Rules SEBI will now limit the number of weekly options contracts to one per exchange. This move is expected to streamline trading and prevent the over-saturation of weekly contracts.
3. Upfront Collection of Option Premiums Effective February 2025, SEBI will mandate the upfront collection of option premiums from buyers. This ensures more accountability in the options market, reducing counterparty risk.
4. Additional Margin Requirements for Short Options To further enhance risk management, SEBI has introduced a 2% additional margin requirement for short options contracts on the day they expire. This requirement is expected to be effective from February 2025.

SEBI’s Measures for Strengthening Equity Index Derivatives

1. Removal of Calendar Spread Treatment SEBI will eliminate the calendar spread treatment for options contracts on the expiry day, a measure to improve the transparency and fairness of derivatives trading.
2. Intraday Monitoring of Position Limits Exchanges will now be required to monitor intraday position limits in equity index derivatives. This move is designed to provide real-time oversight and prevent market manipulation.

SEBI’s updated framework for derivatives trading aims to strengthen market integrity, promote transparency, and ensure that risk is managed more effectively.

These rules will affect various stakeholders in the F&O market, from traders to exchanges, starting in November 2024, with further changes coming in February 2025.

Tags: SEBI, derivatives trading, F&O rules, equity index derivatives, option premiums, trading margins, SEBI regulations