Key Changes & Impact of new F&O Rules by SEBI Explained
Here is the link to the SEBI Circular for your reference.
1. Limited Weekly Expiries
Change: To curb speculative trading, each exchange will be allowed to offer contracts with weekly expiry for only one benchmark index.
Impact: Currently we have at least 1 expiry every day. SEBI has put an end to it.
So, is it going to be Nifty or BankNifty then? NSE has to take a call. We might have Nifty weekly expiries and only Monthly expiries in BankNifty.
This is a good opportunity for BSE to increase derivatives volumes. Anyone invested in BSE?
For me personally this is good. I have always struggled to hedge mid caps with weekly expiries. It gets expensive and the weekly timeframe is too less for certain type of hedges. Now I can put some monthly hedges to protect mid caps. Liquidity likely to increase in Monthly options.
Effective from November 20, 2024.
2. Removal of Calendar Spread Treatment on Expiry Day
Change: On expiry days, traders will no longer be allowed to offset positions across different expiries.
Impact: No Margin Benefits on Calendar Spreads on Expiry Day.
For example, if you sell Weekly Options on Expiry expecting it to go to zero and you buy the Monthly options as hedge, then you will not be getting any hedge benefits on Expiry day.
This is true the other way as well. There is a positional strategy I use where I sell Monthly Options and buy weekly options to hedge. On expiry, I might not get the hedge benefit. Time to rethink.
Effective from February 1, 2025.
3. Intraday Monitoring of Position Limits
Change: SEBI will implement intraday monitoring of position limits for index derivatives to prevent breaches during expiry days.
Impact: Previously in Zerodha, you cannot buy OTM Calls or PUTs in NRML/Overnight beyond a certain strike if the OI limit is breached. However, you can do Intraday Trading in any OTM option. Now this will also be limited.
So you might not be able to execute certain options strategies in Zerodha anymore depending on how far Out of the money you buy or sell.
Zerodha revenues might get affected. Opportunity for other brokers maybe.
Effective from April 1, 2025.
4. Increase in Minimum Contract Size
Change: The minimum contract size for index derivatives has been raised from ₹5-10 lakhs to ₹15 lakhs.
Impact:
Higher margin requirements for Option Sellers.
Higher upfront premium outlay for option buyers. This might limit participation in F&O.
But who knows, people might borrow more money to trade now instead of quitting F&O trading. Greed knows no bounds.
Effective from Nov 20, 2024 for new contracts.
5. Upfront Collection of Option Premiums from Buyers
Change: Trading and Clearing Members are now required to collect option premiums upfront from buyers to mitigate excessive intraday leverage.
Impact: Already many brokers collect premium upfront. But some allow to buy on collateral. This is not allowed anymore.
Effective from February 1, 2025.
6. Increase in Tail Risk Coverage
Change: An additional Extreme Loss Margin (ELM) of 2% will be imposed on short options contracts on expiry days to enhance protection against heightened speculative activity.
Impact: Additional Margin requirement for Option Sellers on Expiry Days.
Effective from November 20, 2024.
This is a preliminary take. We need to wait for more info from the exchanges and brokers to get more clarity. How do these changes impact you? Please do let me know.
Disclaimer: Anand Ganapathy K is a SEBI-registered Research Analyst with SEBI registration number INH000016630. Securities market investments carry market risks. Kindly review all related documents before investing.
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weekly one expiry is good... but if we have sideways market then decay will be more for monthly options. Everything is favouring the option sellers. This will certainly introduce less volatility....(expecting)