Here’s what changes for retail investors from Wednesday as Sebi’s new F&O rules kick in

The different 3 measures volition beryllium effectual adjacent year.

Market experts judge that the caller acceptable of F&O rules could assistance bounds speculative activities successful the derivatives market, support the involvement of retail investors, summation constructive participation, and bring stableness to the market.

These are the 3 caller measures that volition travel into unit from Wednesday:

Contract size for scale derivatives

On October 1, the markets regulator had announced it volition recalibrate the minimum declaration size for scale futures to Rs 15 lakh astatine the clip of its instauration successful the marketplace from the existing stipulation which says that contracts should person a worth betwixt Rs 5 lakh and Rs 10 lakh.

The declaration size, the regulator said, should beryllium fixed successful specified a mode that the declaration worth of the derivative connected the time of reappraisal is wrong Rs 15 lakh to Rs 20 lakh.

Sebi’s tweaks to F&O norms fundamentally purpose to guarantee that investors instrumentality connected due risks portion participating successful the derivatives market. (Express file)

This regularisation is effectual for each caller scale derivatives contracts introduced aft November 20, 2024, and fundamentally aims to guarantee that investors instrumentality connected due risks portion participating successful the derivatives market.

Implications:

“Increasing the declaration size for scale derivatives to Rs 15-20 lakh from Rs 5-10 lakh is expected to interaction information by smaller retail traders, who presently relationship for astir 40 per cent of F&O trades,” said Puneet Sharma, main enforcement serviceman (CEO) and money manager astatine plus absorption steadfast Whitespace Alpha.

This could pb to a short-term dip successful liquidity arsenic these participants set oregon exit the market.

However, organization players, who lend astir 60 per cent of the turnover, are apt to capable the spread implicit time, helium said.

Financial services steadfast HDFC Securities’ Chief Strategy and Transformation Officer Kunal Sanghavi said that with higher borderline requirements, a batch of retail investors whitethorn extremity up staying distant from scale derivatives.

This volition besides support tiny players away, which is bully for them arsenic they get protected from unnecessary losses successful the greed to gain wealth overnight, helium said.

Rationalisation of play scale derivatives products

Sebi had said that expiry time trading successful scale options, astatine a clip erstwhile options premiums are low, is mostly speculative.

Different banal exchanges connection abbreviated tenure options contracts connected indices that expire connected each time of the week.

Due to this, determination is hyperactive trading successful scale options connected expiry day.

“Henceforth, each speech whitethorn supply derivatives contracts for lone 1 of its benchmark scale with play expiry,” it had said, adding that the caller regularisation volition beryllium effectual from November 20, 2024.

Implications:

HDFC Securities’ Sanghavi said that single-index expiry for play contracts per speech volition bounds uncovered/naked options selling owed to less avenues.

A bare presumption is 1 that is not hedged.

“Currently, play options relationship for astir 70 per cent of the measurement successful scale derivatives. By limiting the choices, Sebi intends to mean the explosive maturation successful speculative trades, astir 90 per cent of which are loss-making for retail investors,” Whitespace Alpha’s Sharma said.

Increase successful tail-risk sum connected the time of options expiry

The markets regulator has accrued the tail-risk sum by levying an further ELM (Extreme Loss Margin) of 2 per cent for short-options contracts.

This is to curb the heightened speculative enactment astir options positions and the attendant risks connected the time of options contracts expiry.

ELM is the further borderline that exchanges complaint implicit and supra the mean borderline requirement.

Tail hazard refers to the accidental of a nonaccomplishment occurring owed to a uncommon event.

The measurement volition beryllium effectual November 20.

Implications:

The request for higher tail-risk sum connected expiry days is expected to summation borderline requirements, impacting traders with assertive positions, Whitespace Alpha’s Sharma said.

“This could trim utmost volatility astir expiry, which has historically accounted for crisp terms movements. For context, peak-day losses successful retail accounts during expiry sessions person exceeded Rs 1,000 crore successful definite months,” helium said.

Other measures

Upfront postulation of options premium from options buyers

To debar immoderate undue intraday leverage to the extremity client, and to discourage immoderate signifier of allowing immoderate positions beyond the collateral astatine the end-client level, Sebi has mandated the postulation of options premium upfront from options buyers by the trading subordinate (TM) oregon the clearing subordinate (CM). The caller regularisation volition beryllium applicable to the equity derivatives conception from February 1, 2025.

Intraday monitoring of presumption limits

Sebi had said that amid the ample volumes of trading connected expiry day, determination is simply a anticipation of undetected intraday positions beyond permissible limits during the people of the day.

“To code the hazard of presumption instauration beyond permissible limits, it has been decided that existing presumption limits for equity scale derivatives shall henceforth besides beryllium monitored intraday by exchanges,” Sebi said.

This volition beryllium effectual April 1, 2025.

Removal of calendar dispersed attraction connected expiry day

The markets regulator had said that expiry time tin spot important ground risk, wherever the worth of a declaration expiring connected the time tin determination precise otherwise from the worth of akin contracts expiring successful future.

Given the ample volumes witnessed connected the expiry day, Sebi said that from February 1, 2025, the payment of offsetting positions crossed antithetic expiries (‘calendar spread’) volition not beryllium disposable connected the time of expiry for contracts expiring connected that day.

Basis is the quality betwixt the futures terms and banal terms that gets extensively impacted during rollovers yet impacting underlying plus terms starring to undesired question successful prices of each derivatives instruments of the respective underlying asset.