All you need to know about SEBI's new rules for F&O trading

The Securities and Exchange Board of India ( SEBI ) announced a fresh set of guidelines on Tuesday evening aimed at checking speculative trading in the futures and options segment of the stock market. These include raising the minimum contract value and the need for an upfront payment of option premiums. All these will come into effect in phases from November 20.

Among the many changes, SEBI has increased the contract size for index derivatives to a minimum of Rs 15-20 lakh from Rs 5-10 lakh. The regulator noted that this will be in lieu of market growth and protection of investors in the risky environment. SEBI 's move came after a report published recently revealed that 93 per cent of retail traders, over 1 crore participants have suffered losses in the F&O segment. Losses averaged Rs 2 lakh a person between FY22 and FY24 and total losses during that time exceeded Rs 1.8 lakh crore.

Some other rules include intraday monitoring of position limits and removing calendar spread benefits on expiry days. SEBI will also rationalise weekly index derivatives by capping weekly expiry contracts to only one benchmark index to diminish speculative risks.

In a bid to reduce the risk exposure on expiry dates, a margin of 2 per cent will be charged on the day of short option contracts. Option buyers are obligated to pay the full premium amount in advance, and random snapshots will start checking for the position limit violations on stock exchanges from April 1, 2024.

All these measures have the objective of enhancing market stability at the same time as making the derivatives market appropriate to participants in an increasingly fast-growing and volatile financial environment.