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HomeFutures & OptionsSEBI Circular: 6 Key Updates on Derivatives Trading

SEBI Circular: 6 Key Updates on Derivatives Trading

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•⁠ ⁠Calendar spread benefits no longer applicable on expiry days.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

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