The Securities and Exchange Board of India (SEBI) has introduced stricter norms for the equity derivatives segment to protect small investors from speculative trading. These measures, set to take effect in November, aim to reduce excessive speculation and promote market stability. Here are four key implications of SEBI’s stricter norms:
Key Implications of SEBI’s Stricter Norms
1. Increased Contract Size to Curb Speculation
The contract size for index options and futures will increase to ₹15 lakh from the current range of ₹5 lakh to ₹10 lakh. This change is expected to curb speculation and heightened activity by small individuals and retail participants, who often take undue risks and incur losses in the futures and options segment.
2. Reduction in Weekly Expiries to Have Highest Impact
SEBI has reduced the number of weekly option contracts to one benchmark index per exchange, resulting in six weekly contracts per month, down from 18. This change will limit uncovered or naked option selling due to fewer avenues.
3. Margin Changes to Impact Retail Participation
Withdrawing cross-margin benefits for calendar contracts on the last day will force players to do rollovers early, easing expiry day speculation. However, analysts at Jefferies feel that the margin hike was lower than expected.
4. Phased Implementation for Calibrated Tightening
The phased implementation of these measures over the next 3-6 months is seen as a positive for market health, preventing systemic shocks and leading to calibrated tightening.
SEBI’s efforts to regulate derivatives trading come after concerns were raised about significant losses in household savings due to speculative trading. The regulator aims to promote market stability and protect small investors.
Must Read: India’s Smartphone Exports Overtake Diamonds to US, Reaching $2 Billion in Q2
