By Vineet Kumar 
SEBI Proposes Stricter Rules for F&O Trading: New Regulations to Curb Speculation
India’s stock market regulator, the Securities and Exchange Board of India (SEBI), is set to tighten the rules for futures and options (F&O) trading, aiming to curb excessive speculation and market volatility. In a consultation paper released on Monday, SEBI proposed linking position limits to the cash market and introducing stricter criteria for index derivatives.
These measures follow SEBI’s October 2024 regulations, which raised entry barriers for F&O traders. The latest proposals reflect the regulator’s concern over the increasing influence of derivatives on cash market movements.
Key Proposals: Stricter Position Limits and Index Rules
1. Position Limits Linked to Cash Market
SEBI has suggested that market-wide position limits (MWPL) for stock derivatives should be capped at:
15% of the free-float market capitalization or
60 times the average daily delivery value of the stock,
whichever is lower.
This move aims to ensure that derivatives trading aligns with actual liquidity in the cash market, preventing excessive speculation and price manipulation.
2. Tougher Criteria for Index Derivatives
SEBI has also proposed new eligibility criteria for index-based F&O contracts (excluding Nifty 50 and Sensex):
The index must have at least 14 constituent stocks.
The top three stocks in the index should not exceed 45% of the total weight.
No single stock should have more than a 20% weight in the index.
These rules will help prevent an over-reliance on a few heavyweight stocks, reducing the risk of market manipulation.
3. Pre-Open Session for Futures Trading
To enhance price discovery and reduce volatility, SEBI has suggested extending the pre-open session mechanism—currently used in the cash market—to the futures market. Initially, this will apply to current-month futures contracts for both stocks and indices.
Why SEBI is Tightening F&O Regulations
The proposed changes come amid rising concerns about the derivatives market’s impact on the broader stock market. In September 2024, Indian equities hit record highs, followed by sharp corrections, raising alarms about speculation-driven volatility.
By enforcing stricter F&O norms, SEBI aims to:
✔️ Protect retail investors from high-risk speculation.
✔️ Ensure derivatives trading reflects real market liquidity.
✔️ Reduce extreme price swings linked to speculative bets.
Next Steps: Seeking Market Feedback
Before implementing these rules, SEBI has invited stakeholder feedback. If approved, these regulations could reshape India’s F&O landscape, making it more structured and less speculative.
What do you think about SEBI’s proposals? Will these changes make the market safer, or will they limit trading opportunities? Share your thoughts in the comments!
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