NEW
RULES FOR RETAIL INVESTOR BY SEBI : ECONOMY
NEWS:
Here’s what changes for retail investors from today as Sebi’s new F&O rules
kick in
WHAT’S
IN THE NEWS?
SEBI will increase the contract size for index
derivatives to ₹15 lakh, rationalize weekly index derivatives, enhance tail
risk coverage on expiry days, and mandate upfront premium collection for
options buyers, among other reforms.
Key
Measures Proposed by SEBI (Effective from November 21, 2024):
Increasing
Contract Size for Index Derivatives:
- Change: Contract size for index
futures and index options will be raised to ₹15 lakh.
- Current Range: ₹5 lakh to ₹10 lakh.
- Purpose: Aligns with market trends
and ensures better risk management for participants.
Rationalization
of Weekly Index Derivatives:
- Policy: Each exchange can offer
weekly expiry contracts for only one benchmark index.
- Objective: Avoids fragmentation and
enhances liquidity in key indices.
Enhancing
Tail Risk Coverage:
- Focus: Mitigation of losses caused
by rare market events (tail risks).
- Implementation: Strengthened safeguards for
the expiry day of options contracts.
Upfront
Collection of Option Premium:
- Policy: Option buyers must pay the entire
premium amount upfront.
- Objective: Ensures clarity and reduces
credit risks.
Intraday
Monitoring of Position Limits:
- Measure: Continuous monitoring of
participants’ positions within allowable limits during the trading day.
- Impact: Prevents excessive
speculation and ensures compliance.
Removal
of Calendar Spread Treatment on Expiry Day:
- Definition: Calendar spreads involve
buying and selling options or futures contracts with different expiration
dates.
- Change: This treatment will be
removed for contracts expiring on the same day to simplify trading and
settlement.
Understanding
Futures and Options (F&O):
Futures
Contracts:
- Definition: A standardized contract
between two parties to buy or sell an asset at a predetermined price on a
specified future date.
- Obligation: Both buyer and seller are legally
bound to fulfill the contract on the expiration date.
- Margin Payment: Investors pay only a
fraction (margin) of the total value upfront.
- Underlying Assets: Includes stocks,
commodities, currencies, etc.
Options
Contracts:
- Definition: A contract granting the right,
but not the obligation, to buy (call option) or sell (put option) an
asset at a pre-set price before or on the expiration date.
- Flexibility for Buyers:
- If favorable: Exercise the
option.
- If not favorable: Let it
expire.
- Premium Payment: The buyer pays a premium
for this flexibility.
- Types:
- Call Option: Right to buy.
- Put Option: Right to sell.