BSE shares surged over 7% on October 3 after the Securities and Exchange Board of India (SEBI) announced new norms for regulating the futures and options (F&O) market. These regulations, aimed at tightening controls in a high-risk segment, include increasing contract size and limiting weekly expiries to one per exchange. The new rules are part of an effort to strengthen the equity index derivatives framework and will be implemented gradually from November 20, 2024.
Key Changes Introduced by SEBI:
1. Upfront Collection of Option Premium:
SEBI mandates that trading members must collect option premiums upfront from buyers, reducing undue leverage. This measure takes effect from February 1, 2025, and aims to ensure better risk management.
2. No Calendar Spread Treatment on Expiry Day:
To reduce risks associated with high trading volumes on expiry day, SEBI has decided to remove the benefit of offsetting positions across different expiries for contracts expiring on that day. This rule is set to begin on February 1, 2025.
3. Intraday Monitoring of Position Limits:
Stock exchanges are instructed to monitor position limits for equity index derivatives at multiple intervals throughout the day, ensuring that no positions exceed permissible limits. This will come into effect from April 1, 2025.
4. Increase in Contract Size:
SEBI has increased the minimum contract size for index futures and options to ₹15 lakh from ₹5-10 lakh, starting November 20, 2024. This aims to ensure that derivative contracts remain within an appropriate size and risk level.
5. Limiting Weekly Expiry to One per Exchange:
To reduce excessive speculative trading on weekly expiry days, SEBI will restrict weekly expiry contracts to one index per exchange, effective November 20, 2024. BSE and NSE will need to choose their weekly index derivative products.
6. Enhanced Tail Risk Coverage:
To cover speculative risks around options expiry, SEBI will levy an additional 2% extreme loss margin (ELM) on short options contracts expiring on the day. This rule will be applicable for contracts expiring on that day, starting from their opening.
Following these announcements, BSE shares were trading 7.10% higher at ₹4,132.95 on the NSE as of 9:45 am.
Disclaimer: The information provided in this article is for informational purposes only and should not be construed as investment advice. Please consult a financial advisor before making any investment decisions.
