As India’s economy has grown, and its stock market, so have the number of retail investors. As a result, India’s capital markets regulator has attempted to put the brakes on derivatives trading in order to deter risky trading behaviour from this often-inexperienced cohort.Â
SEBI (Securities and Exchange Board of India) has outlined measures to strengthen the country’s equity index derivatives framework, maintain market integrity and mitigate risks associated with speculative trading in index derivatives, particularly on expiry days.
Some of the measures to be introduced include the upfront collection of option premium, which will see buyers of options compelled to pay premiums upfront; the removal of calendar spread benefit on expiry day, which aligns margin treatment with cross-margin frameworks; intraday monitoring of positio limits, which will see exchanges take a minimum of four snapshots throughout the day to ensure position limits are not breached during trading.
The above will be implemented between February and April 2025, while the following will be implemented in November 2025: the minimum contract value will be increased to 1,500,000 rupees (US$18,000), adjusting for market growth since the last revision in 2015; stock exchanges will be limited to offering weekly expiry index derivatives on only one benchmark index; and an additional 2% Extreme Loss Margin (ELM) will be levied on short options contracts on expiry days due to heightened speculative activity.
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