SEBI's Updated Rules for Index Derivatives:

What Investors and Traders Need to Know?

On October 1, 2024, the Securities and Exchange Board of India (SEBI) introduced a significant overhaul to the index derivatives market through a new circular. These changes are set to reshape the landscape of derivatives trading in India. Here's a comprehensive breakdown of these updates and their potential impact on traders.
Increase in Contract Size

One of the most notable changes SEBI announced is the increase in contract size for index derivatives. Currently, the contract size for index F&O (Futures and Options) ranges between Rs. 5 lakhs to Rs. 10 lakhs. However, effective November 20, 2024, this range will increase to between Rs. 15 lakhs to Rs. 20 lakhs.

This increase will directly impact the lot size for index F&O contracts, leading to proportionally higher margin requirements. Existing positions in long-term options might also be affected as they could turn into odd lots, particularly impacting Nifty options traders.

New Lot Sizes for Major Indices

Starting November 20, 2024, SEBI will limit weekly expiry contracts to a single benchmark index per exchange. For instance, the NSE (National Stock Exchange) may choose to offer weekly expiries for either the Nifty 50 or the Bank Nifty, but not both.

No Calendar Spread Benefits on Expiry Day

Effective February 1, 2025, SEBI will eliminate margin benefits for calendar spreads on the expiry day of derivative contracts. This decision impacts traders who use calendar spreads to manage risk and reduce margin requirements.

Additional Margins on Expiry Day

To manage risks on volatile expiry days, SEBI will implement an Extreme Loss Margin (ELM) of 2% on short positions for options expiring on the same day, starting from November 20, 2024.

Upfront Premium Collection for Buying Options

From February 1, 2025, SEBI's new rules will require upfront collection of the entire premium when buying options, eliminating any potential for additional leverage.

Real-time Monitoring of Position Limits

Starting April 1, 2025, SEBI will enhance its surveillance with real-time monitoring of position limits for derivatives, aiming to maintain market discipline and prevent sudden spikes in positions.

Implementation Timeline for SEBI’s New Rules

Navigating the New Landscape

SEBI’s latest updates to the index derivatives market aim to create a more structured and risk-controlled trading environment. By increasing contract sizes, limiting weekly expiries, and implementing stricter margin requirements, SEBI is focusing on balancing risk and stability in the market.

Stay informed with MBC Trading Platform as we guide you through these transitions, helping you optimize your trading strategies in line with the latest SEBI regulations.