SEBI Proposes 7 Steps To Protect F&O Traders In 2024 | Madhabi Puri Buch

52,000 crore rupees lost. 85 out of every 100 traders lose money.

Yes, you heard that right! 92.5 lakh individuals and firms lost almost 52,000 crore rupess in the index derivatives segment of nse in the last financial year

This alarming data from market regulator SEBI has put the spotlight on the growing concerns around futures and options trading.
To tackle it, SEBI has now proposed a set of measures based on the recommendations from an expert panel. Let's break down these key proposals.

First up, SEBI aims to rationalise the existing strike price introduction methodology. It wants strike interval to be uniform near prevailing price, that is around four percent. As the strike moves away from the prevailing price, the interval will increase from around 4% to 8%.

Also, currently there are 70 strikes where trading happens. SEBI wants to reduce this number to 50.

Next, SEBI proposes increasing the minimum value of derivatives contracts from 5-10 lakh rupees to 15-20 lakh in the first phase and then to 20-30 lakh rupees in the second phase.

This move is expected to reduce the number of retail investors in this high-risk segment.

To prevent undue intraday leverage and discourage the practice of allowing positions beyond collateral, SEBI suggests mandating the upfront collection of options premiums from buyers, similar to current practices for futures contracts.

Given the volume skew on expiry days, SEBI proposes eliminating margin benefits for calendar spread positions involving contracts expiring on the same day.

SEBI also recommends that position limits for index derivative contracts be monitored on an intraday basis by clearing corporations or stock exchanges, with a phased implementation plan to accommodate necessary technology changes.

To streamline trading, SEBI suggests that weekly options contracts should only be provided on a single benchmark index of an exchange, reducing the current five-day expiry system.

And finally, to address high implicit leverage near contract expiry, SEBI proposes increasing the extreme loss margin (elm) by 3 to 5 percent

These measures are designed to make futures and options trading less speculative and more regulated, addressing the significant losses faced by investors.

Brokerage firm jefferies notes that SEBI's new rules could directly impact nearly 35% of the F&O volumes.

So, what do you think about these proposed measures? Will they help curb the losses faced by retail investors? Let us know in the comments below.

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