Tue Oct 01 16:36:54 UTC 2024: ## SEBI Tightens Grip on High-Risk Futures & Options Trading

In a bid to curb excessive speculation and protect retail investors, the Securities and Exchange Board of India (SEBI) has introduced a new set of guidelines for high-risk futures and options (F&O) trading. These new rules aim to strengthen the equity index derivatives framework and will be implemented in multiple stages, starting November 20, 2024.

**Key changes include:**

* **Increased minimum contract size:** The minimum contract size for index futures and options will be raised from Rs 5-10 lakh to Rs 15 lakh, effective November 20, 2024. This move aims to ensure suitability and appropriateness criteria for participants, given the inherent leverage and risk in derivatives trading.
* **Limit on weekly index expiry:** From November 20, 2024, each exchange will be allowed to offer weekly derivatives contracts on only one benchmark index. This move aims to reduce excessive trading on expiry days, which has been linked to speculative activity.
* **Upfront collection of option premiums:** Starting February 1, 2025, option premiums will need to be collected upfront. This aims to address the high implicit leverage associated with options trading.
* **Removal of calendar spread treatment on expiry day:** From February 1, 2025, the benefit of offsetting positions across different expiries (calendar spread) will no longer be available on the day of expiry. This move aligns with a cross-margin framework on correlated indices and aims to address the heightened basis risk on expiry days.
* **Intraday monitoring of position limits:** Effective April 1, 2025, stock exchanges will be required to monitor existing position limits for equity index derivatives at least four times a day, to address the risk of positions exceeding permissible limits on expiry days.

These new regulations are based on recommendations from an Expert Working Group (EWG) and aim to address concerns raised by a recent SEBI study. The study revealed that individual traders in India experienced net losses of Rs 1.81 lakh crore in F&O trading from April 2021 to March 2024, with only 7.2% managing to make a profit.

SEBI’s new measures are expected to have a significant impact on the F&O market and are likely to influence the trading strategies of market participants, particularly retail investors.

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