SEBI, the Securities and Exchange Board of India, has introduced new rules to control the growing trading activity in India’s futures and options (F&O) market. Deepak Shenoy, CEO of Capitalmind, shared his thoughts on the changes, saying that SEBI has effectively altered the way F&O trading works, especially on expiry days.
Key Changes in F&O Rules:
1. Options Premium to be Paid Upfront:
Starting in February 2025, buyers of options will need to pay the full premium upfront. Currently, exchanges allow brokers to use their collateral for intraday trading, letting traders buy and sell options using someone else’s collateral. This won’t be allowed anymore, and traders will need to use their own money for these purchases.
2. No Calendar Spread on Expiry Day:
A calendar spread allows traders to sell an option expiring soon and buy another for a later expiry, reducing the required margin by up to 50%. This means traders can take larger positions with the same amount of money. SEBI has decided to remove this benefit for expiry day, as it could increase risks if sudden market changes occur and traders can’t balance their positions.
Shenoy explained that removing the calendar spread benefit on expiry days could help reduce the risks associated with large retail traders who engage in frequent trading during daily expiries, especially when selling options in bulk (known as “straddles”). The move is meant to protect the market from potential spikes that could create large losses for traders.
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