Capital markets regulator Securities and Exchange Board of India (SEBI) has mandated a new framework for India’s booming equity derivatives market and announced radical changes to stop the rush in futures and options (F&O) trading. Post announcement to SEBI of new F&O norms, Nithin Kamathco-founder and CEO of Zerodhaannounced that the leading online stock brokerage platform will review its pricing structure after November 20, 2024, based on the impact of new rules for trading indexed derivatives.
On microblogging platform ‘X’ (formerly Twitter) “.
“As things stand, assuming weekly operations do not transition to monthly, the impact will be ~60 per cent of overall F&O operations and ~30 per cent of our total orders. I guess things will become much clearer after November 20th. We will then decide our change in pricing structure, based on the impact on the business,” Kamath said in a post on ‘X’.
SEBI implemented six of the seven measures recommended by an expert panel to cool exuberance in the Indian derivatives market. Market participants said the measures, which will be implemented in phases, could reduce derivatives volumes by 20 to 30 percent.
Of the six, those that could impact volumes the most are the reduction of weekly expirations per exchange from five to just one, the increase in lot size to $15-20 lakh $5-10 lakh, and elimination of calendar spread benefit on maturity day. The first two will come into force on November 20 and the third on February 1, 2025.
This means that weekly expirations are limited to one per exchange and contract sizes increase. As a result, the contract size for the F&O index will increase by $5-10 lakh to $15-20 thousand rupees. Starting November 20, stock exchanges will be able to offer weekly expirations for a single benchmark index. For example, the NSE can choose between Nifty 50 or Bank Nifty, but not both. All other indices will move to monthly maturities.
Additionally, starting in February 2025, traders will lose margin benefits on calendar spreads for contracts expiring on the expiration day, increasing margin requirements for many. SEBI has also introduced an extreme loss margin (ELM) of two per cent on the expiration day to cover risks due to higher volatility.
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