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.
