On Oct. 1, IND SEBI finalized measures for equity index derivatives.
IND SEBI finalized measures to strengthen equity index derivatives framework for investor protection, market stability, including upfront collection of option premium.
In addition, removal of calendar spread benefit on the expiry day; intraday monitoring of position limits; contract size for index derivatives; rationalization of weekly index derivatives; increase in tail risk coverage (extreme loss margin) on option expiry date.
Follows IND SEBI Jul. 2024 proposed strengthening investor protection, see #221327.
Overview of Measures
Mandate collection of option premium upfront from option buyers by trading/clearing members; upfront margin collection shall include net option premium at client level.
Benefit of offsetting positions across different expiries shall be unavailable on the day of expiry for contracts; on the expiry day, the worst scenario loss shall be calculated separately for contracts expiring on the given day and for the rest of the contracts.
Existing position limits for equity index derivatives shall be monitored intra-day by exchanges; stock exchanges shall consider min. 4 position snapshots during the day.
The existing framework of penalty structure for a breach of the end-of-day position limit shall be extended by exchanges to intraday position limit breaches as well.
Derivative contract shall have a value not less than INR 1.5mn at the time of its introduction to the market; lot size shall be fixed in such a manner that the contract value of the derivative on the day of review falls within INR 1.5mn–INR 2.0mn.
Improve index derivatives offered by exchanges expiring on weekly basis; raise tail risk coverage by levying extra extreme loss margin of 2% for short option contracts.
Effectiveness
Measures concerning upfront collection of option premium from buyers and removal of calendar spread benefit on the expiry day, will be effective from Feb. 1, 2025.
Intraday monitoring of position limits from Apr. 1, 2025; contract size for index derivatives, rationalization of weekly index derivatives products from Nov. 20, 2024.
Plus, increase in tail risk coverage on the day of option expiry from Nov. 20, 2024.
Oct. 18, 2024 IND NSE Index Derivatives Contract
On Oct. 18, 2024, IND NSE issued revised lot sizes for index derivatives contracts.
Follows above-mentioned measures by IND SEBI to strengthen derivatives framework.
Implements minimum contract value requirement of INR 1.5mn per SEBI guidelines.
Existing weekly and monthly contracts to continue with current lots until their expiry.
Transition schedule for quarterly and half-yearly contracts will proceed as indicated.
Day spread order book unavailable for specific contract combinations on certain dates.
Members required to inform clients holding positions about upcoming lot size changes.
Members advised that updated contract, spread files must be loaded before trading.
New lot sizes effective for index derivatives contracts introduced from Nov. 20, 2024.
Oct. 21, 2024 Extreme Loss Margins
On Oct. 21, 2024, IND NSE updated on extreme loss margin percentage provisions.
An extra 2% ELM will be applied to short index options contracts on the expiry day to increase coverage against tail risk; this additional ELM applies to both existing short index options at start of the day and new short index options initiated on expiry day.
The current ELM report will now include all option strikes and the applicable ELM.
Percentages will reflect the additional 2% ELM for short index options on expiry day.
The circular is effective Nov. 20, 2024.
Oct. 22, 2024 IND NSE Corrigendum
On Oct. 22, 2024, IND NSE issued a corrigendum to contract size revision for index derivatives; NSE reproduced annexure from Oct. 18 circular above, with the correction.
NSE explained that the note below the table within the annexure mentioned that the Mar. 2025 index derivatives contract will become far month contract of the respective index derivatives in Dec. 2025 instead of mentioning the same as Dec. 2024.
Document dated Oct. 22, 2024 received from IND NSE Oct. 25, summarized Oct. 30.
