The regulator has rolled out these measures after taking into consideration the highly speculative nature of trading on index derivatives, particularly on expiry day of the contracts.
Market regulator Securities and Exchange Board of India (Sebi) has announced a slew of measures to strengthen index derivative framework to protect investors and improve market stability, including reducing expiries to a weekly basis. Each exchange will be allowed to provide derivatives contracts for only one of its benchmark index with weekly expiry.
The regulator has rolled out these measures after taking into consideration the highly speculative nature of trading on index derivatives, particularly on expiry day of the contracts.
Sebi has also increased the minimum trading amount for derivatives from Rs 5-10 lakh to Rs 15 lakh when it is introduced in the market, which will then be increased to fall between Rs 15 lakh and Rs 20 lakh.
The new norms will be rolled out in phases, starting November 20. Index derivative contracts with weekly expiries, increase in contract sizes and increase in tail risk coverage by levying additional extreme loss margin will be launched from that day.
From February 1, 2025, there will be upfront collection of option premium from buyers and removal of calendar spread treatment on the expiry day. From April 1, 2025, there will be intraday monitoring of position limits.
The regulator noted that expiry day trading in index options, when option premium are low, is largely speculative. Stock exchanges offer contracts that expire every day of the week. The regulator’s consultation paper has noted that there is hyperactive trading in index options on expiry day, with average position holding periods in minutes, accompanied by increased volatility in the value of the index through the day and at expiry.
