EarnFree

SEBI Proposes Measures to Curb Derivatives Volumes

The Securities and Exchange Board of India (SEBI) has recently proposed a set of measures aimed at curbing excessive volumes in derivatives trading. These measures are designed to improve market stability, enhance transparency, and reduce speculative trading. Here’s a breakdown of the key proposals:

1. Rationalisation of Options Strikes: SEBI recommends streamlining the range of available strike prices for options contracts. By reducing the number of strike prices, the goal is to focus trading activity on more relevant and liquid options, which can help in reducing market fragmentation and improving price discovery.
2. Increasing Lot Sizes: The regulator suggests increasing the minimum lot sizes for derivatives contracts. Larger lot sizes are expected to reduce the frequency of small trades, which can help in curbing excessive speculative activity and increasing market depth.
3. Rationalising Weekly Options: SEBI proposes a review and rationalisation of weekly options contracts. This measure aims to limit the proliferation of short-term options that can contribute to high trading volumes and volatility.
4. Increase in Margin Near Contract Expiry: To mitigate the risk of speculative trading, SEBI suggests increasing margin requirements as contracts approach their expiry date. Higher margins will act as a deterrent for traders engaging in high-risk strategies close to expiry.
5. Upfront Collection of Options Premiums: The proposal includes the upfront collection of premiums for options contracts. This change is intended to ensure that traders have sufficient funds to cover their positions and reduce the risk of defaults.
6. Removal of Calendar Spread Benefit on Expiry Day: SEBI aims to eliminate the benefits of calendar spreads on expiry day. By doing so, the regulator intends to prevent traders from exploiting these spreads to gain an unfair advantage and reduce market manipulation.

These proposed measures are part of SEBI’s ongoing efforts to enhance the integrity of the derivatives market and ensure that trading practices remain fair and orderly. Market participants are advised to stay informed about these developments and adjust their trading strategies accordingly.