Minimum contract size: SEBI raises F&O lot size to Rs 15-20 lakh to curb speculative trading, volume may fall

SEBI has put in place a strict framework for equity index derivatives by mandating upfront collection of option premiums by increasing the minimum contract size to prevent speculative trading. Other measures include intra-day monitoring of position limits, removal of calendar spread benefit on expiry day, rationalization of weekly index derivatives and increase in tail risk coverage.

These measures will be effective in a phased manner from November 20, with a view to protecting investors and maintaining market stability, particularly in the high-risk environment of index options trading on the expiry day, Sebi said in its circular.

A recent Sebi study found that 93 percent of the over 1 crore individual traders in the F&O segment lost an average of Rs.2 lakh (including transaction costs) between FY22 and FY24. During this time the total loss of traders was Rs. 1.8 lakh crore has crossed. The minimum contract size for SEBA index derivatives is Rs. 5-10 lakhs to Rs. 15-20 lakhs, which was last set in 2015. The aim was to better align with market growth.

It has been determined that the value of the derivative contract at the time of its introduction to the market is Rs. Should not be less than 15 lakhs. Exchanges may offer weekly expiry derivatives for only one benchmark index to prevent speculative trading on rationalization of index derivatives. It also approved the MF Lite framework for passive schemes besides approving the proposal to introduce a new asset class for high risk profile investors to bridge the gap between fund-portfolio management services.

Sebi's board approved a total of 17 proposals, including amendments to insider trading rules to further clarify the definition of related person and his relatives, including some relaxations in eligibility criteria for investment advisers and research analysts, as well as compliance requirements. This was the first board meeting after US-based short-seller Hindenburg Research and Congress leveled allegations against SEBI chairperson Madhavi Puri Buch.

Hindenburg accused Buch and her husband of investing in offshore funds run by Vinod Adani, brother of Adani Group chairman Gautam Adani.

Option buyers must pay the full premium upfront Sebi said that option buyers will have to pay full premium upfront to avoid excessive leverage, besides the benefit of offsetting positions at different expiries will not be allowed on the day of expiry from February 1. Actions are likely to be taken soon regarding the futures and options segment to increase the safety of investors.