Tue Oct 01 16:21:03 UTC 2024: ## Sebi Tightens Grip on Index Derivatives to Curb Speculation and Enhance Market Stability

**New Delhi:** In a move aimed at curbing excessive speculation and enhancing market stability, the Securities and Exchange Board of India (SEBI) has announced a series of stringent measures for index derivative trading. These measures, rolled out in phases starting November 20, 2023, focus on reducing weekly expiries, increasing contract sizes, and strengthening risk management protocols.

**Key Changes:**

* **Weekly Expiry:** Each stock exchange will now offer derivative contracts for only one benchmark index with weekly expiry. This move is aimed at reducing hyperactive trading on expiry days, which SEBI considers largely speculative.
* **Increased Contract Sizes:** The minimum trading amount for derivatives will be hiked from the current Rs 5-10 lakhs to Rs 15 lakh. This will be further increased to between Rs 15 lakh and Rs 20 lakh later. The move aims to ensure participants are taking appropriate risks aligned with market growth.
* **Additional Extreme Loss Margin (ELM):** To address excessive speculative activity on expiry days, SEBI has mandated an additional 2% ELM for all open short options at the start of the day and on short options initiated during the day that are due for expiry. This additional ELM aims to protect investors during extreme market events.
* **Upfront Collection of Option Premium:** To prevent undue leverage and discourage positions exceeding collateral, SEBI has directed brokers to collect net option premiums upfront from buyers.
* **Removal of Calendar Spread Treatment on Expiry Day:** The benefit of offsetting positions across different expiries will no longer be available for contracts expiring on that day. This aims to mitigate basis risk associated with the significant volume of trading on expiry days.
* **Intraday Monitoring of Position Limits:** Stock exchanges and clearing corporations will now monitor position limits at least four times a day to prevent undetected intraday positions beyond permissible limits.

**Rationale Behind the Changes:**

SEBI has stated that the changes are necessary to protect investors and ensure market stability, as excessive speculative activity on expiry days poses significant risks. The regulator believes that the new measures will encourage more informed and responsible trading, promoting sustainable capital formation.

**Industry Reaction:**

While some welcome the measures, citing concerns about potential bad actors flooding the scene, others believe the changes will help create a more stable and predictable market environment. The impact of these new regulations will be closely observed in the coming months.

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