The Securities and Exchange Board of India (SEBI) has unveiled a series of new measures aimed at strengthening the equity index derivatives market, focusing on investor protection and enhanced market stability. These initiatives follow recommendations from SEBI’s Expert Working Group on derivatives and the Secondary Market Advisory Committee.

Key changes include the mandatory upfront collection of option premiums from buyers, a move designed to mitigate undue intraday leverage. Effective February 2025, trading and clearing members will be required to collect option premiums upfront, significantly altering the landscape for options trading.

Additionally, SEBI will eliminate calendar spread treatment on the expiry day of contracts to minimize basis risk on high-volume trading days, also set to be implemented in February 2025.

These announcements followed a board meeting where SEBI considered various recommendations to tighten regulations for retail individual derivative traders. Notably, the F&O framework was not on the agenda for this meeting, but further circulars are expected to be issued promptly, with exchanges implementing changes in a phased manner.

To combat speculative trading, SEBI will initiate intraday monitoring of position limits in equity index derivatives starting April 2025. Stock exchanges are instructed to capture random position snapshots at least four times during the trading day to ensure compliance with permissible limits.

Moreover, the minimum contract size for index derivatives will increase from Rs. 10 lakh to Rs. 15 lakh, effective November 20, 2023. This recalibration aims to ensure that market participants are suitably matched to the growing dynamics of the market.

Lastly, to reduce speculative trading and volatility on expiry days, exchanges will only be permitted to offer weekly expiry derivatives contracts on one benchmark index, with this regulation also taking effect on November 20.