The Securities and Exchange Board of India (SEBI) has announced new measures to bolster the index derivative framework. The goal is to safeguard investors and reinforce market stability. These measures will be implemented gradually, with the first phase scheduled to commence on November 20, 2024.
Key Changes:
Remember the following essential changes in derivative trading:
1. Weekly Expiries: Derivative contracts now have a weekly expiry instead of daily expiries. Each exchange will offer contracts for only one benchmark index.
2. Increased Contract Size: The minimum trading amount for derivatives has been increased from Rs 5-10 lakhs to Rs 15-20 lakhs, with the new minimum set at Rs 15 lakh.
3. Higher Margin Requirement: Investors must collect an additional 2% Extreme Loss Margin (ELM) to cover tail risk on expiry days.
4. Upfront Premium Collection: Brokers will now collect net option premiums upfront from buyers to prevent intraday leverage.
5. No Calendar Spread: Offset positions across different expiries will not be allowed for contracts expiring on the same day.
Implementation Timeline:
– November 20, 2024: Changes to index derivative contracts, including introducing weekly expiries, larger contract sizes, and elevated margin requirements.
– February 1, 2025: Implement an upfront collection of option premiums from buyers and eliminate calendar spread treatment.
– On April 1, 2025, intraday monitoring for position limits will be introduced. This will allow real-time tracking and management of position limits throughout the trading day.
SEBI’s recent consultation paper highlighted the excessive trading activity in index options on expiry days, which has been identified as contributing to heightened market volatility and speculative behavior. The regulatory body’s primary objective is to uphold market stability and encourage participants to undertake well-considered risks. These proposed adjustments underscore SEBI’s dedication to safeguarding investors and fostering a stable market environment. SEBI Enhances Investor Protection with New Derivative Trading Norm!
