Tue Oct 01 17:37:06 UTC 2024: ## India’s Capital Market Regulator Cracks Down on Derivatives Market Exuberance

**MUMBAI, INDIA** – In a bid to cool the heated derivatives market in India, the Securities and Exchange Board of India (SEBI) has implemented six out of seven measures recommended by an expert panel. These measures, aimed at curbing risky trading practices, are expected to significantly impact market volumes, potentially reducing them by 20-30%.

The most impactful changes include:

* **Reduced Weekly Expiry:** From November 20, exchanges will only allow one weekly expiry per exchange, down from five. This could significantly impact trading volumes as investors adjust to the new structure.
* **Increased Lot Size:** The minimum lot size for derivatives contracts will increase to ₹15-20 lakh from ₹5-10 lakh, effective November 20. This change is designed to limit the number of trades by smaller investors, as the required margin will increase significantly.
* **Removal of Calendar Spread Benefit:** This benefit, which allowed traders to reduce their margin requirements on expiry day, will be removed effective February 1, 2025.

Other measures include:

* **Intra-day Monitoring of Position Limits:** This will be implemented from April 1, 2025, to ensure that brokers do not provide excessive leverage to individual clients during intra-day trading.
* **Upfront Collection of Option Premia:** From February 1, 2025, all brokers will be required to collect option premia upfront from buyers.
* **Increased Extreme Loss Margin:** The margin required for derivatives trades on expiry day will increase from November 20.

Market experts anticipate a significant decline in derivatives volumes as a result of these measures. Rajesh Baheti, MD of Crosseas Capital, predicts a 20-30% drop in volumes.

The move follows a SEBI study revealing that 93% of over 10 million individual F&O traders lost an average of ₹2 lakh each in the past three years. This has prompted regulators to take steps to protect retail investors from potentially excessive risk.

While some measures are being implemented immediately, others will be phased in over the next few years. Further measures, such as a product suitability framework, are also under consideration. The future of India’s derivatives market will be closely watched as these regulations take effect.

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