New Delhi: Stock market regulator Sebi has introduced a set of rules aimed at cracking down on speculative trading, especially on those high-stakes expiry days. The goal? To protect retail investors and reduce risky behaviour in Futures & Options (F&O) trading. However, what do these new rules mean for investors and the overall market? Let’s break it down.
SEBI shares 6 key rules to shepherd derivatives trading, popularly called F&O trading. These rules are designed to limit speculative trades, particularly on expiry days, and create a more stable and safer environment for retail investors.
What are SEBI’s six key F&O rules?
Between November 2024 and April 2025, SEBI will roll out six major changes to reshape the F&O market:
Upfront collection of options premiums
Intraday monitoring of position limits
Removal of calendar spread benefits on expiry day
Larger contract sizes for index derivatives
Weekly expiries limited to one benchmark per exchange
Higher margin requirements on options expiry days
Why weekly expires are a game changer
One of the biggest changes is SEBI’s decision to allow only one benchmark index per exchange to have weekly expiries. Currently, multiple indices such as Nifty, Bank Nifty, and Midcap—offer weekly options, leading to a rush of speculative trading.
SEBI’s move to reduce these to a single index aims to bring order to the chaos. Fewer indices with weekly expiries mean fewer short-term speculative trades and less volatility in the market. This could shift focus to monthly expiries, which are usually more stable and less prone to wild price swings. For retail investors, it’s a double-edged sword: fewer chances for quick profits but more stability overall.
How will larger contract sizes help?
Another significant change is the increase in the minimum contract size for index derivatives, now set at Rs 15 lakh. This makes it more expensive to enter these trades, and it’s aimed at limiting participation to those who have the capital to handle the risks.
This change could reduce the number of small retail investors jumping into the F&O market, particularly those who rely on leverage to make profits. SEBI believes this is necessary to ensure only well-capitalised, risk-aware investors participate in these high-risk instruments.
Why no calendar spread benefits on expiry day?
Calendar spreads, which allow traders to hold positions across different expiry dates and lower margin requirements, will no longer offer these benefits on expiry days. This is a big shift since these spreads have been a popular strategy to manage risk, particularly on the highly volatile expiry days.
Without the advantage of lower margins, traders will need to have more capital set aside to cover their positions, especially when the market is most unpredictable. This move aims to prevent traders from making aggressive bets with minimal capital, reducing the risk of market disruptions on expiry days.
How upfront premium collection can slash leverage
SEBI’s decision to mandate the upfront collection of options premiums is another significant change. Traders will now have to pay the entire premium before executing a trade, a rule designed to discourage small retail investors from taking on excessive leverage. This move could slow down high-risk trading, since it makes it harder for retail investors to rely on borrowed funds to amplify their bets.
What are the potential drawbacks of new rules
While these rules aim to stabilise the market and protect retail investors, they could also come with some downsides. Raising contract sizes and limiting leverage could reduce overall trading volumes, which might decrease liquidity. And less liquidity could, in turn, lead to more volatility—exactly what SEBI is trying to avoid. Additionally, stricter margin requirements and higher upfront costs might limit the ability of investors to use creative trading strategies, potentially stifling market innovation.
What’s next for F&O derivatives
As SEBI rolls out these changes, the derivatives market is poised to look very different in the coming months. While the regulator’s primary goal is to create a safer, more transparent market, it also means that retail investors will need to reassess their trading strategies. With fewer speculative opportunities and higher entry barriers, F&O trading could become a game for the well-prepared and well-capitalised. However, one thing is clear — the era of high-risk, high-reward derivatives trading is about to take a more measured and cautious turn.
Markets regulator SEBI has laid down new rules to guide futures and options derivatives trading in a bid to curb shield individual traders from risks and incurring deep losses. Let’s try to understand these rules in a better way. Markets Business News – Personal Finance News, Share Market News, BSE/NSE News, Stock Exchange News Today
