New SEBI rules to curb F&O frenzy, aim to protect small investors

Market experts judge that tighter F&O rules could assistance bounds speculation successful the derivatives market, support the involvement of retail investors, summation constructive participation, and amended marketplace stability.

1. Contract size for scale derivatives recalibrated

The minimum declaration size astatine the clip of its instauration successful the marketplace has been recalibrated to Rs 15 lakh from the existing stipulation of Rs 5-10 lakh. The regulator has said that the declaration size should beryllium fixed successful specified a mode that the declaration worth of the derivative connected the time of reappraisal is Rs 15-20 lakh.

This volition use to each caller scale derivatives contracts introduced aft November 20 this year. This measurement raises the introduction barrier, and seeks to guarantee that participants successful the derivatives marketplace instrumentality connected due risks.

IMPLICATION: V K Vijayakumar, Chief Investment Strategist astatine Geojit Financial Services, said the summation successful declaration size tin curb speculation by tiny traders who person been hyperactive successful the F&O segment.

Kunal Sanghavi, Chief Strategy and Transformation Officer, HDFC Securities, said tiny investors and retail participants extremity up taking undue risks and marque losses successful the F&O segment. “Retail players successful tier 2 and tier 3 cities volition request to re-strategise connected relationship of the summation successful the minimum scale derivatives declaration worth from Rs 5 lakh to Rs 15 lakh astatine the clip of introduction,” Sanghavi said.

“A batch of retail investors whitethorn extremity up staying distant from scale derivatives. This volition support them from losses successful the greed to gain wealth quickly,” helium said.

2. Upfront postulation of options premium

To contradict undue intra-day leverage to the extremity client, and discourage the signifier of allowing positions beyond the collateral astatine the extremity 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 from February 1, 2025.

IMPLICATION: This is chiefly to guarantee prudent hazard absorption astatine the capitalist level, Puneet Sharma, CEO and Fund Manager astatine Whitespace Alpha, a multi-asset people plus absorption firm, said.

“Options transportation inherent leverage, which tin amplify gains oregon losses. By mandating upfront collection, SEBI aims to minimise undue intraday leverage, ensuring that positions are taken lone against capable collateral,” helium said.

The purpose is to instill discipline, trim assertive short-term speculation, and mitigate the hazard of defaults owed to overleveraged positions, Sharma said.

3. Rationalisation of play scale derivatives products

SEBI has said that expiry-day trading successful scale options astatine a clip erstwhile enactment premiums are low, is mostly speculative. Stock exchanges connection short-tenure options contracts connected indices which expire connected each time of the week, starring to hyperactive trading successful scale options connected expiry day.

SEBI has directed that “henceforth, each speech whitethorn supply derivatives contracts for lone 1 of its benchmark scale with play expiry”. This volition beryllium effectual from November 20.

IMPLICATION: Sanghavi said this volition bounds the avenues for uncovered/ bare options selling. A bare presumption 1 that is not hedged.

Sharma said the hyperactive trading successful aggregate play expiring contracts leads to abbreviated holding periods and accrued marketplace volatility, peculiarly connected expiry days. “By limiting the availability of these products, SEBI is focusing connected reducing the measurement of purely speculative trades, and thereby curbing the predominant terms fluctuations that tin destabilise the market,” helium said.

4. Intra-day monitoring of presumption limits

Amid ample volumes of trading connected expiry day, determination is simply a anticipation of undetected intra-day positions beyond permissible limits. “To code the hazard of presumption instauration beyond permissible limits…existing presumption limits for equity scale derivatives shall henceforth besides beryllium monitored intra-day by exchanges,” SEBI said. This volition beryllium effectual from April 1, 2025.

IMPLICATION: Intra-day monitoring of presumption limits, alternatively than conscionable end-of-day checks, reflects a committedness to ensuring real-time compliance with regulatory norms. “By implementing random intra-day snapshots, SEBI is trying to proactively forestall speculative excesses and support orderly marketplace behaviour passim the day,” Sharma said.

5. Removal of ‘calendar spread’ attraction connected expiry day

Expiry time tin spot important ‘basis’ 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 connected expiry day, 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, SEBI said.

IMPLICATION: “This volition unit players to bash rollovers aboriginal and not hold until expiry day, easing expiry time ‘basis’ speculation,” Sanghavi said. ‘Basis’ is the quality betwixt the futures terms and banal price, which is majorly impacted during rollovers — yet impacting the underlying plus terms and starring to undesired question successful prices of each derivatives instruments of the underlying asset.

6. Increase successful ‘tail risk’ sum connected time of expiry

The regulator has accrued the ‘tail risk’ sum by levying an further ‘Extreme Loss Margin’ (ELM) of 2% for abbreviated options contracts. ELM is the borderline that exchanges complaint implicit and supra the mean borderline requirement. Tail hazard is the accidental of a nonaccomplishment owed to a uncommon event.

IMPLICATION: This volition guarantee that marketplace participants person much tegument successful the game, peculiarly connected days erstwhile volatility spikes, Sharma said. “It acts arsenic a buffer against abrupt marketplace moves driven by leveraged abbreviated options, protecting some investors and the broader marketplace ecosystem from important downside risk,” helium said.