By Vineet Kumar 
MC Explains: SEBI’s New Rules for Index Derivatives Trading
The Securities and Exchange Board of India (SEBI) has introduced significant changes to index derivatives trading, effective November 2024. These rules aim to curb excessive speculation, promote market stability, and protect traders from undue risks. However, the trading community is grappling with the adjustments. Here’s a comprehensive overview of the new regulations and their potential impact.
1. Weekly Index Derivatives Rationalization
Effective Date: November 20, 2024
Previously, weekly expiries were available daily across multiple indices, encouraging speculative trading and heightened volatility. SEBI has now mandated weekly expiries only for specific indices:
NSE: Nifty contracts expire every Thursday.
BSE: Sensex contracts expire every Friday.
Other indices no longer have weekly expiries, reducing opportunities for zero-day-to-expiry (0DTE) trades, which were popular for their high-risk, high-reward nature.
Impact:
Brokerages and Exchanges: Reduced trading volumes could result in a 30-50% revenue decline, as stated by Zerodha’s CEO, Nithin Kamath.
Traders: Strategy overhaul is essential. Those relying on 0DTE trades may need to explore new approaches or exit the market.
2. Higher Margins on Expiry Days
Effective Date: November 20, 2024
Option sellers are now required to pay an additional 2% Extreme Loss Margin (ELM) on expiry days. This measure is designed to counter extreme speculative trading during high-volatility periods.
Key Insights:
Option Buyers: No significant impact.
Option Sellers: Increased margin requirements could pose challenges, particularly for large-scale traders managing capital upwards of ₹20 lakh. Strategies like straddles and OTM selling will become costlier, potentially leading to margin shortfalls.
3. Revised Contract Size for Index Derivatives
Effective Date: November 25, 2024
SEBI now mandates a minimum contract value of ₹15 lakh for index derivatives. For instance, the Nifty50 lot size has been adjusted to comply with this new threshold.
Implications:
This change ensures better risk management but might discourage small retail traders due to higher capital requirements.
Larger players and institutional investors remain unaffected, as they typically trade in higher volumes.
4. Intraday Monitoring of Position Limits
Effective Date: April 1, 2025
Previously, brokers monitored position limits at the end of the trading day. Under the new rules, these checks must occur four times daily on expiry days.
Objective: Prevent breaches of position limits during volatile expiry-day trading.
Effect:
Retail Traders: Minimal impact, as they rarely approach position limits.
Proprietary Traders and Brokers: Increased scrutiny will deter unethical practices, such as “renting” proprietary books, potentially reducing illicit activities.
Why These Changes Matter
SEBI’s revamped framework aims to instill discipline in the derivatives market, reducing speculative frenzy and safeguarding participants from catastrophic losses. While small traders may feel the pinch, these regulations align with the broader goal of market integrity and stability.
For traders, this is a wake-up call to reassess strategies and adapt to a more regulated environment. Despite initial disruptions, these measures are likely to create a healthier, more robust trading ecosystem in the long run.
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