Indian Stock Markets: The Securities and Exchange Board of India (SEBI) in order to protect the interests of small investors has thereby tightened norms for equity derivatives (F&O or futures and options).

The Stricter restrictions include increasing the size of futures and options contracts , increase in margin requirements and reduction in weekly contracts. These three measures are to be implemented from November and are more significant for retail investors

Here are 4 key takeaways of stricter SEBI norms as per experts

1. Increase in contract size -Experts expect this to curb speculation

The contract size for index options and futures would increase to ₹15 lakh from the current range of ₹5 lakh to ₹10 lakh. “Increase in contract value of index derivative contracts by SEBI will curb speculation and heightened activity by small individuals and retail participants, who end up taking undue risk and make losses in futures and options segment” said Kunal Sanghavi, Chief Strategy and Transformation Officer, HDFC Securities

2.Reduction in number of weekly expiry seen as most positive step

Of the measures taken by SEBI , Jefferies India Pvt Ltd says that the highest impact can come from reduction in the number of weekly option contracts to one benchmark index per exchange i.e. total of 6 weekly contracts in a month (vs 18 currently).

Single index expiry for weekly contracts per exchange will limit uncovered or naked option selling due to lesser avenues, said Sanghavi.

3.Margin changes

Withdrawing cross margin benefit for calendar contracts on the last day, will force players to do rollovers early and not wait till expiry day, easing expiry day “basis” speculation said Sanghavi.

However Jefferies analysts feel that margin hike was lower than expected . Jefferies report said that “The additional margin (relevant for option sellers) on expiry day is proposed at 2% and no additional margin has been introduced on T-1 day (vs 3% proposed earlier). While retail participation in options is expected to moderate said Jefferies, the lower than expected hikes can soften the impact.

4. Phased implementation may lead to calibrated tightening -Jefferies

While first 3 measures as the reduction in weekly contracts, additional margin and higher lot size have higher impact on retail participation and will be implemented from 20th November. the latter 3 measures are more consequential to Institutional players (High frequency trading/Algos) These include upfront collection of premiums and removal of calendar spreads to be implemented from 1st Feb’25. Intraday monitoring of position limits will be implemented from 1st Apr’25. Jefferies sees phased implementation over the next 3-6 months as a big positive for market health as it prevents any systemic shocks and leads to a calibrated tightening of the market.

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