SEBI’s new rules for index derivatives: Here’s what’s changing
On October 1, 2024, SEBI released a circular that changes a few things for index derivatives. Here’s a breakdown of all the changes and their impact.
Increase in contract size
Currently, the contract size for index F&O contracts is between Rs. 5 lakhs to 10 lakhs. Starting November 20, 2024, the contract value will be increased to between Rs. 15 lakhs to Rs. 20 lakhs.
This will increase the lot size for index F&O contracts and will also result in increased margin requirements in the same proportion. The increase in lot size could also result in existing positions in longer-dated options trading as odd lots. This will specifically impact longer-dated Nifty options, as the new lot size won’t be a simple multiple of the current one.
No calendar spread benefits on expiry day
Traders typically hold positions across different expiries (known as calendar spreads), this provides margin benefits and reduces the margin requirements.
On the expiry day of the F&O contracts, there’s a higher risk that the price of the contract expiring will behave very differently from contracts expiring at a later date. This is because of larger trading volumes on that particular day, which can lead to unpredictable price movements.
To manage this risk, SEBI has decided that traders will not get any margin benefits for calendar spreads on the day of expiry for contracts expiring on that day from February 1, 2025.
Example: Let’s say you have a short option expiring on 31st January with a margin of Rs. 1 lakh and a long option expiring on 28th February. Since your short position is hedged by the long one, you get a margin benefit and need only Rs. 50,000 instead of Rs. 1 lakh.
However, on 31st January (expiry day), this margin benefit will no longer be available, and you will have to maintain the full Rs. 1 lakh margin.
Limiting weekly expiry contracts
Currently, there are weekly expiries for 4 indices on NSE and 2 on BSE. Under the new rules, stock exchanges will only be allowed to offer weekly expiry contracts on one benchmark index. This comes into effect from November 20, 2024.
For example, NSE will be able to offer weekly expiry only for the Nifty 50 index or Bank Nifty, not for both. Likewise, BSE will be able to offer weekly expiry only for Sensex or BankEx. All other indices will only have monthly expiry.
Additional margins on expiry day
Starting November 20, 2024, an Extreme Loss Margin (ELM) of 2% will be applied to short positions (selling options) on the expiry day to cover potential risks due to increased volatility.
Example: You have a short position in Nifty 27,000 call option expiring on 30th October with a margin requirement of Rs. 1 lakhs. On the expiry day of this option, you will have to maintain an additional 2%.
ELM is calculated on contract value (Strike price * Lot size). So you will need an additional margin of Rs. 12,500 (25000 Strike price * 25 Lot size * 2% / 100) on expiry day.
Upfront collection of premium while buying options
To ensure there is no additional leverage provided, SEBI has mandated that an option buyer now needs to pay the entire option premium upfront.
Nothing changes for you at Zerodha, as we have always collected option premium upfront for buying options.
Intraday monitoring of position limits
SEBI and exchanges have limits on the maximum positions a single client or a broker can hold for a particular contract. For clients, this limit is set at 5% of the total number of all derivative contracts of the same underlying and 15% for brokers.
Currently, these limits are monitored at the end of each day by the exchanges. Starting April 1, 2025, these will be monitored multiple times throughout the trading day.
Here’s when all the changes come into effect:
If you have any queries, post them on this thread on TradingQnA.
Hi,
Reg calendar spread limitation, does it apply to diagonal spread also, like different expiry&different strike price?
Why SEBI and NSE have taken this decision investors may gain and loose money common in the market.but sometimes they may get huge profits in options .
Now no chance to the poor to become rich.
This is why the rich becoming richer and the poor becoming poorer.
Very sad , misery, 😭😭😭😭😭
SEBI only listens to the govt. they increased lot size to increase turnover per lot so that Govt get more STT. bullshit rules. They are not saving retail traders but killing them.
Thank you posting in well arranged and understandable way
Why sebi. Your decision is only favour for riches. It makes door closed for poor to become richer.Why this partiality. Why stoping weekly expiry. Monthly expiry margins are costlier than weekly than how a low volume trader or poor trader will trade monthly expiry. Same time this cause earning loss for nse& bse too.
SEBI failed to provide full date. It give the loser data of retail fno investors only. They do not provide the gainers data. Moreover they also failed or purposely did not provide the gainer and loser data of HNIs, FIIs, and domestic institutional investors data. I saw many retail investors with windfall gains who become HNIs. Is it hurts SEBI? Who is behind SEBI. IF NOT SEBI should provide full dataset for transparency.
Sebi are you also there for the richer community? To stop losses instead of increasing lot size u could have arranged for training and allow to trade only after certification.
Worthless idea of increasing lot size
Sevi is clearly mentioned that lot size changes are made for equity index derivatives as per their circulation, but some youtubers are saying that it is applicable to the single stock derivatives as well. Is there any truth in it. I think as a leading brocker in country, you will have much clear answer. Please do share your thoughts.
What about commodity futures and options. Any changes
Non-sense , stop increasing the lot size …..and weekly expiry shldnt be removed ……dumb rules
It’s a joke!
After all the international speculation on the leadership board, they are trying to create PR ripples.
Weren’t they away about the weekly expiries? Didn’t they reduce the lot size of the index options in April?
God bless this country 🙏
The calendar spread is a very legitimate hedging strategy when you are trading options. I might buy a nifty option of a specific strike price expiring a month from today. And then sell an option of a higher strike expiring this week. It goes to reduce my cost of holding the long option. Why would SEBI do away with that flexibility.
Is there any impact on the futures?
Yes, Pradeep. Same rules apply for index futures as well.
Is there any changes with equity option as well or this for index only
Hi Narendra, this is only for indiex F&O, does not apply for stock F&O.
I have 10 lots (250nos) Dec 2025 25000 PE. What will happen to this when the contract size changes.
Which instrument continue for weekly expiry after 20 november, nifty or banknifty? Whats the more chances we all want to know
Hi Jai, NSE is yet to announce which index will be allowed for weekly expiry.
Wow, beautiful and simple explanation . I read the same news on some other sites and it didn’t make any sense to me.. cheers Zerodha