On Tuesday, July 30, the Securities and Exchange Board of India (SEBI) released a consultation paper proposing some regulations for derivatives trading. These measures aim to boost market stability and safeguard small investors amid growing concerns about youngsters gambling household savings in the high-risk, high-return world of derivative trading.

So let's find out what are the proposals that has been made by SEBI.

Key Proposals by SEBI

1. Rationalization of Options Strikes:

• SEBI proposes uniform strike intervals up to 4% around the current index price to improve predictability and reduce market manipulation.
• Beyond this, intervals will expand to reduce the number of strikes further from the current price, simplifying the market.
• A maximum of 50 strikes will be allowed initially to maintain orderliness.
• New strikes will be introduced daily to ensure smooth market adaptation.

2. Upfront Collection of Options Premium:

• To curb intraday leverage, SEBI proposes requiring option buyers to pay the full premium upfront to prevent excessive risk-taking.

3. Removal of Calendar Spread Benefit on Expiry Day:

• Due to increased volumes and liquidity risk on expiry days, SEBI will eliminate margin benefits for calendar spread positions involving contracts expiring on the same day to reduce volatility risks.

4. Minimum Contract Size:

Phase 1: Minimum value of derivatives contracts will increase to ₹15-20 lakhs.
Phase 2: After six months, the minimum value will rise to ₹20-30 lakhs.

Detailed Video:

5. Rationalizing Weekly Options:

• SEBI proposes limiting weekly options contracts to a single benchmark index to simplify the market, focus liquidity, and improve manageability and regulation.

6. Increase in Margin Near Contract Expiry:

• To counter high leverage near contract expiry, SEBI recommends increasing the Extreme Loss Margin (ELM) by 3% the day before expiry and by 5% on the expiry day to buffer against extreme volatility.

7. Intraday Monitoring of Position Limits:

• SEBI proposes intraday monitoring of position limits for index derivative contracts by clearing corporations and stock exchanges, with a fixed short-term period and a glide path for full implementation, requiring necessary tech changes.

Apart from these steps the good news is that the common people like you and me have been given the right to comment on this proposal. You can do so by going on the website of SEBI. A link has been attached below for your reference.

SEBI | Public Comments 

And a detailed youtube video on this same topic will be live by today only. You can also watch the steps from the video.

SEBI's proposed measures reflect a proactive approach to enhancing market stability and protecting investors. By rationalizing options strikes, ensuring upfront premium collection, and tightening position limits, SEBI aims to create a safer, more predictable trading environment. These steps are crucial for maintaining investor confidence and fostering a robust derivatives market in India.