sebi consultation paper: Sebi begins crackdown on F&O mess, suggests 7 measures to save retail traders

Amid concerns that youngsters are gambling household savings in the high risk-high return world of derivative trading, markets regulator Sebi on Tuesday proposed seven steps, including increasing the minimum contract size for F&O to Rs 20 lakh and limiting weekly options contracts.

While highlighting that 92.5 lakh retail traders and proprietorship firms incurred a trading loss of Rs 51,689 crore in FY24, the regulator released a consultation paper on measures to strengthen index derivatives framework for increased investor protection and market stability.

On the basis of measures suggested by an expert panel, Sebi has proposed following measures to be adopted by stock exchanges and clearing corporations.

1) Rationalisation of options strikes

Sebi has proposed to rationalise existing strike price introduction methodology. 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%), it said.

2) Upfront collection of options premium

In order to avoid any undue intraday leverage to end clients and to discourage any market wide practice of allowing position beyond the collateral at the end client level, it is desirable to mandate collection of options premium upfront from the options buyer.

3) Removal of calendar spread benefit on expiry day

Given the skew in volumes witnessed on the expiry day vis-à-vis other non-expiry days and the inherent basis and liquidity risk present therewith, the margin benefit for calendar spread position would not be provided for positions involving any of the contract expiring on the same day.

4) Intraday monitoring of position limits

Given the evolving market structure, the position limits for index derivative contracts shall also be monitored by the clearing corporations/stock exchanges on intraday basis, with an appropriate short-term fix, and a glide path for full implementation, given the need for corresponding technology changes.

5) Minimum contract size

The minimum value of derivatives contract should be increased from Rs 5-10 lakh to Rs 15-20 lakh in the first phase and Rs 20-30 lakh in the second phase.