Sebi’s New F&O Rules Begin This Week: What Traders Need to Know

The Futures and Options market has always attracted investors with the promise of quick gains. But for most, those gains remain out of reach. With 93 per cent of individual investors in this space ending up in the red, it’s no surprise there’s growing pressure to introduce new rules to protect them. And Sebi (Securities and Exchange Board of India) has been quick to take a step.

The new F&O rules will come into effect from November 21 (Thursday) as markets remained closed on November 20 (Wednesday) due to Maharashtra Assembly elections. Check out the new regulations in-place:

Increase in contract size

As per the new norms, the minimum derivative contract size must be atleast Rs 15 Lakh crore. Previously, the size used to be anywhere between 5-10 lakhs. Plus, the lot size (the number of units in the contract) will be fixed in such a way that the contract’s value stays between Rs 15 lakh and Rs 20 lakh on the day of review.

Reducing weekly expiries

Both the bourses (National Stock Exchange and Bombay Stock Exchange) will be reducing their weekly F&O contracts. According to the new norms, the exchanges will now offer only one weekly index derivative contract. This means major contracts like Bank Nifty and Nifty Midcap will be discontinued from this month.

Extreme Loss Margin

In order to limit the volatility in the market and calm the risk appetite, Sebi has applied an additional ELM (Extreme loss margin) on short positions on the expiry day. An ELM of 2 per cent will be imposed on short index options contracts.

No calendar spread benefits

Traders often hold positions in contracts with different expiry dates to manage risk. However, under the new regulations, traders will no longer be able to benefit from margin advantages gained by holding multiple contracts with different expiries.

Upfront collection of premium

To further control the exuberance in the market, Sebi has mandated brokers to charge traders an option premium upfront. This will discourage excessive trader participation in the options space

Intraday monitoring of position limits

Currently, SEBI and exchanges set limits on how many positions a single client or broker can hold for a particular contract. But these limits are checked only at the end of each trading day. As per the new regulations, these limits will be monitored multiple times a day.