Measures to Strengthen Equity Index Derivatives Framework for Increased Investor Protection and Market Stability 

Home>Editorial>Measures to Strengthen Equity Index Derivatives Framework for Increased Investor Protection and Market Stability 

Summary of the SEBI Circular SEBI/HO/MRD/TPD-1/P/CIR/2024/132  dated  Oct 01 2024

1. Upfront Collection of Option Premium: Trading Members (TMs) and Clearing Members (CMs) must collect option premiums upfront from buyers to avoid undue leverage. The new rule applies to equity derivatives from February 1, 2025.

2. Removal of Calendar Spread Treatment on Expiry Day : Calendar spread benefits will no longer be available on the day of contract expiration due to increased risk. This aligns with cross-margin frameworks and will apply from February 1, 2025.

3. Intraday Monitoring of Position Limits : Stock Exchanges will now monitor intraday position limits for equity index derivatives, with at least four snapshots per day. This will be effective from April 1, 2025.

4. Contract Size for Index Derivatives : Minimum contract values for index derivatives will be increased to Rs. 15–20 lakhs to ensure suitability for participants. This will apply to new contracts from November 20, 2024.

5. Rationalization of Weekly Index Derivatives: Exchanges will be allowed to offer weekly index derivatives contracts for only one benchmark index to curb speculative trading. Effective from November 20, 2024.

6. Increased Tail Risk Coverage on Expiry Day : An additional 2% margin (ELM) will be imposed on short options expiring on the same day to cover tail risk. This will be implemented from November 20, 2024.

These measures aim to improve market safety by addressing risks related to expiry-day volatility, speculative trading, and intraday leverage.

Applicability: