F&O Tightening Norms Do Not Require SEBI Board Nod, They Are Coming Soon—Exclusive

The much anticipated regulations to tighten trading in futures and options was not part of the SEBI board meeting held on Monday.

It was widely anticipated that the board would approve the recommendations of the expert working committee and Secondary Market Advisory Committee, that sought tightening of regulations to ensure losses are curtailed for retail individual derivative traders.

The markets regulator had floated draft consultation paper to issue a circular, according to people aware of the matter. The draft circular was floated to seek public comments and stakeholder feedback. A circular does not require to be taken to the board for approval, the person said.

The Securities and Exchange Board of India will 'notify' the circular once it completes assessment of the feedback. While exact timing of the notification could not be determined at this point in time by NDTV Profit. Once the notification is issued by the markets regulator, the stock exchanges will start implementation of the circular in a phased manner.

The regulator had floated consultation paper to issue a circular on measures to strengthen index derivatives framework for increased investor protection and market stability. It had sought comments on the draft circular.

The draft circular proposed:

• Rationalisation of strike price for options.

• Strike interval to be uniform near prevailing index price (4% around prevailing price) and the interval to increase as the strikes move away from prevailing price (around 4% to 8%).

• The members to collect option premiums on an upfront basis from the clients.

• Weekly options will be allowed on the benchmark index of the exchanges.

• Margin benefit for calendar spread position would not be provided for positions involving any of the contract expiring on the same day.

• Phase wise increase in contract size for index derivatives—Rs 15-20 lakh at the time of introduction and Rs 20-30 lakh after six months.

• Weekly options contracts to be provided on single benchmark index of an exchange.

• Increase in extreme loss margins—3% on E-1 and additional 5% on expiry day.

In the meantime, stock exchanges have rationalised prices to implement true to label regulations. Tariff for options trading has been increased by both the stock exchanges.