The Securities and Exchange Board of India (SEBI) has proposed new measures to mitigate speculative trading and enhance market stability. These measures are in response to increased retail participation and heightened speculative trading in index derivatives. SEBI’s recommendations aim to address investor protection issues and reduce market volatility associated with index options.
5 Major Key Points:
- Rationalization of Strike Prices: SEBI proposes a uniform strike price interval around the prevailing index price and limits the number of strikes per index derivatives contract to control market speculation.
- Upfront Collection of Options Premium: To prevent excessive leverage, SEBI suggests mandating the upfront collection of premiums from buyers of options contracts.
- Removal of Calendar Spread Benefits on Expiry Day: SEBI aims to eliminate margin benefits for calendar spread positions on expiry days to address the skewed trading volumes and associated risks.
- Intraday Monitoring of Position Limits: The regulator will implement intraday monitoring of position limits for index derivatives to manage evolving market dynamics and ensure stability.
- Increase in Margin Near Expiry: SEBI proposes raising the Extreme Loss Margin (ELM) by 3-5% near contract expiry to reduce the risk associated with high implicit leverage in options contracts.
