The Securities and Exchange Board of India (Sebi) has introduced new measures to reduce risks for retail traders in stock market derivatives. The changes focus on increasing the cost of trading and limiting speculative activity.
Higher Minimum Contract Size
Sebi has increased the minimum contract size for index derivatives, such as Nifty and Sensex, from ₹5 lakh to ₹15 lakh. This means traders will now need to invest more money to trade these contracts, making it harder for smaller retail investors to participate.
Fewer Weekly Contract Options
To further limit speculative trading, Sebi has reduced the number of weekly index derivative contracts to just one per exchange. This is aimed at cutting down on the rapid turnover of contracts, which has led to heavy losses for retail traders in the past.
Upfront Collection of Option Premiums
Starting from April 1, 2025, brokers will be required to collect option premiums from clients upfront. This new rule will prevent traders from gaining excessive leverage (borrowing more money to trade than they can afford), ensuring more responsible trading.
Impact on Trading Volumes and Exchanges
Experts predict that the new rules will lead to a drop in trading volumes of about 10-15%. This will impact stock exchanges and discount brokers, who rely on high-frequency trading for revenue. Analysts expect a decline in business for these entities once the new rules come into effect.
India’s Growing Derivatives Market
India’s derivatives market has seen rapid growth, with index options turnover rising from ₹11 lakh crore in 2020 to ₹138 lakh crore in 2024. Despite this, the new rules aim to curb excessive speculation and promote more stable and responsible trading practices.
From November 20, 2024, stock exchanges will only be allowed to offer weekly derivative contracts for one of their benchmark indices. This is expected to reduce speculative trading across multiple index options, which has been common practice in recent years.
Disclaimer: The views and investment tips expressed by investment experts on Sharepriceindia.com are their own and not those of the website or its management. Sharepriceindia.com advises users to check with certified experts before taking any investment decisions.
