Fools rush in where angels fear to tread. Indian economic policymakers have watched with horror how absolute common investors, with little or no knowledge of Futures & Options (F&O) have flocked to this slippery zone. The result: India has become the global capital of F&O, accounting for about 90% of all the derivative contracts in FY24.
“If Rs 50,000-60,000 crore a year is going away into losses in F&O whereas that would have been productively deployed as may be the next IPO round, maybe MF, to other productive purposes, why is that not a micro issue?” SEBI chairperson Madavi Puri Buch said on July 30.
After repeatedly cautioning the community of investors about the dangers SEBI has come up with 7 concrete steps.
SEBI’s consultation paper suggests the following:
Minimum contract size
The minimum value of derivatives contract which is now Rs 5-10 lakh can be raised in steps – first to Rs 15-20 lakh and then to Rs 20-30 lakh. This would deter many retail investors.
Rationalisation of options strikes
The existing strike price introduction methodology would be rationalised. The strike interval should be uniform near the prevailing index price (4% around prevailing price) and the interval to increase as the strikes move away from prevailing price (around 4% to 8%).
Upfront collection of options premium
Collection of options premium should be made upfront from the options buyer.
Removal of calendar spread benefit on expiry day
The margin benefit for calendar spread position will not be provided for positions involving any of the contracts expiring on the same day.
Intraday monitoring of position limits
The position limits for index derivative contracts will be monitored by clearing corporations/stock exchanges on intraday basis, with an appropriate short-term fix, and a glide path for full implementation.
Rationalising weekly options
SEBI has proposed that weekly options contracts could be provided on a single benchmark index of an exchange.
Increase in margin near contract expiry
Sebi thinks Extreme Loss Margin (ELM) should be increased by 3-5%. This could address the issue of high implicit leverage in options contracts near expiry that creates high risk on a notional basis for entities dealing in options.
India has turned out to be the global capital of Futures and Options. Alarmed at the rising trend of lay investors flocking to this dangerous speculative zone without adequate knowledge, market regulator SEBI has suggested ways of reining it in. Markets Business News – Personal Finance News, Share Market News, BSE/NSE News, Stock Exchange News Today
