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SEBI New Rules For F&O: Market regulator SEBI has announced that it will implement a new framework to regulate the high risk of futures and options (F&O), which will take six measures including increasing the contract size from Rs 5-10 lakh to Rs 15 lakh and limiting weekly expiry to one per exchange. The new rules will come into effect from November 20.
Upfront collection of option premium from option buyers
To avoid any undue intraday leverage (charges) to the end-clients, and to prevent any practice of allowing any positions outside the collateral at the end-client level, upfront collection of option premium from option buyers by the Trading Member (TM) / Clearing Member (CM) will be mandatory.
SEBI said that the upfront margin collection requirement will also include net option premium at the client level. This rule will come into effect from February 1, 2025.
Removal of calendar spread treatment on expiry day
Given the relatively larger volumes witnessed on the expiry day as compared to futures expiry days and the higher risk that this entails, it has been decided that the benefit of offsetting positions across different expiries ('calendar spread') will not be available on the expiry day for contracts expiring on that day. This rule will also come into effect from February 1, 2025.
Monitoring of position limits in intraday
SEBI has directed stock exchanges to monitor the existing position limits for equity index derivatives from April 1, 2025, as there is a risk of positions being created beyond the permissible limits amid heavy volumes on the expiry day.
Contract size for index derivatives
With effect from November 20, 2024, SEBI has increased the minimum contract size for index futures and options from the present Rs 5-10 lakh to Rs 15 lakh at the time of launch.
Further, the lot size will be fixed in such a way that the contract value of the derivative is between Rs 15 lakh and Rs 20 lakh on the day of review.
Limiting weekly index expiries to one per exchange
From November 20, the stock market will get rid of the one-day expiry rule, which has been blamed for increasing speculative activity in the market. To address the problem of excessive trading in index derivatives on the expiry day, it has been decided to rationalize the index derivatives products offered by the exchanges that expire every week.
Increase in tail risk coverage on options expiry day
Given the increasing speculative activity around option positions and the associated risks, SEBI has decided to enhance tail risk coverage by imposing an additional ELM (Extreme Loss Margin) of 2% for short option contracts.
