SEBI Tightens Derivatives Norms: 4 Expert Takeaways on Stricter Rules for Retail Investors

SEBI, India’s market regulator, has introduced stricter rules for equity derivatives (futures and options) to protect small investors. These changes include increasing the size of contracts, raising margin requirements, and reducing weekly contracts. These rules will mostly affect retail investors and will take effect starting November.

Here are the 4 key points from SEBI’s new rules according to experts:

1. Increase in Contract Size

The size of index options and futures contracts will increase to ₹15 lakh from the current ₹5-10 lakh range. Experts, like Kunal Sanghavi from HDFC Securities, believe this will help reduce risky speculation by small investors, who often take on too much risk in this segment and end up losing money.

2. Reduction in Weekly Expiries

SEBI will reduce the number of weekly option contracts from 18 to 6 per month, with one benchmark index per exchange. Experts consider this the most impactful change, as it will limit risky “naked” option selling, where sellers do not have the underlying asset to cover their positions.

3. Changes in Margin Requirements

SEBI has also introduced new margin rules. On the day of contract expiry, additional margin requirements will be set at 2%, which is lower than the previously proposed 3%. Jefferies, a financial services firm, believes that while retail participation may slow down, the smaller margin increase will soften the overall impact.

4. Phased Implementation

SEBI will gradually roll out these changes. The first three measures will begin on November 20, 2024, and will mostly impact retail investors. The remaining measures, such as upfront premium collection and intraday monitoring, will affect institutional players and will be phased in between February and April 2025. According to Jefferies, this gradual approach will prevent shocks to the market and ensure smoother implementation.

In summary, these stricter norms are aimed at reducing risk in the market, especially for smaller investors, and will be implemented in phases to ensure market stability.