Here are the key takeaways from the SEBI Circular on futures and options trading
1. Rationalization of Weekly Derivatives – (we.f. Nov-20, 2024)
• Each exchange may offer derivatives contracts with weekly expiry for only one of its benchmark indices. (One for NSE & One for BSE, Currently every day there is an expiry of some or the other contract.)
• Aimed at reducing fragmentation and increasing liquidity.
2. Revision in Contract Size – (w.e.f. Nov-20, 2024)
- The current stipulation is for such contracts to have a value between Rs. 5 lakhs and Rs. 10 lakhs.
- This limit was last set in 2015. Since then, broad market values and prices have increased by around three times.
- Given this, it has been decided that a derivative contract shall have a value not less than Rs. 15 lakhs at the time of its introduction in the market.
3. Intraday Monitoring of Position Limits (w.e.f. Apr-1, 2025)
• Exchanges to monitor position limits throughout the day.
• Enhances risk management and prevents market manipulation.
4. Removal of Calendar Spread Treatment on Expiry Day (w.e.f. Feb-1, 2025)
• Calendar spread benefits no longer applicable on expiry days.
• Aligns with best practices and reduces systemic risk.
5. Upfront Collection of Option Premium (w.e.f. Feb-1, 2025)
- Options buyers must pay full premium upfront.
- Reduces counterparty risk and promotes transparent pricing.
6. Increase in Tail Risk Coverage (w.e.f Nov-20, 2024)
- 2% extra margin (ELM) applied to short options on expiry day.
- Aims to mitigate tail risk and enhance market stability.
These updates aim to enhance market efficiency, reduce risk, and promote investor/ Trader protection.
Key Takeaways:
- Enhanced Trader protection
- Increased transparency and risk management
- Reduced speculative trading and market manipulation
| Sr No. | Measure | Effective From |
| 1 | Upfront collection of Option Premium from buyers | 01-Feb-25 |
| 2 | Removal of Calendar spread treatment on the Expiry Day | 01-Feb-25 |
| 3 | Intraday monitoring of position limits | 01-Apr-25 |
| 4 | Contract size for index derivatives | 20-Nov-24 |
| 5 | Rationalization of Weekly Index derivatives products | 20-Nov-24 |
| 6 | Increase in tail risk coverage on the day of options expiry | 20-Nov-24 |
Impact Analysis:
- Increased costs for options buyers
- Potential reduction in trading volumes
- Improved market stability and liquidity
Here is the Detailed circular released by SEBI: SEBI_circular
