July 30, 2024
New Delhi, India
Weekly Options Contracts and Upfront Premium Collection
The Securities and Exchange Board of India (SEBI) has proposed new measures to regulate futures and options (F&O) trading. These include the introduction of weekly options contracts on a single benchmark index for exchanges and requiring brokerages to collect option premiums upfront from their clients.
SEBI’s Strategy to Address Speculative Trading
Curbing Market Speculation
SEBI’s latest proposals aim to curb speculative trading in index derivatives by limiting multiple option contract expiries and increasing the size of options contracts. These measures are designed to enhance market stability and protect investors from excessive speculation.
The Context of SEBI’s Proposals
Addressing Retail Speculative Risks
Indian markets have raised concerns about the risks posed by retail investors’ speculative trading in derivatives. In light of increased retail participation and significant speculative trading volumes on expiry days, SEBI’s proposals include offering short-tenure index options contracts to mitigate these risks.
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Regulatory Perspective
Evolving Focus on Market Stability
Madhabi Puri Buch, Chairperson of SEBI, highlighted the growing concern over speculative trading. “Until last year, the regulator viewed the interest in options trading as an investor protection issue, but it has now evolved into a macro issue,” Buch explained.
Retail Trading Losses and SEBI’s Response
Addressing Financial Losses and Introducing Protective Measures
SEBI disclosed that 92.5 lakh retail traders and proprietorship firms incurred trading losses amounting to ₹51,689 crore in FY24. In response, SEBI has released a consultation paper outlining seven measures recommended by an expert panel to strengthen the index derivatives framework and enhance investor protection. These measures are intended for implementation by stock exchanges and clearing corporations.
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