The move was brought in to address excessive trading in index derivatives on expiry day.
This measure will be effective from November 20. From this date, weekly derivatives contracts would only be available on one benchmark index for each exchange.
Expiry day trading in index options, at a time when option premium are low, is largely speculative, the regulator said. Currently, exchanges have several weekly expiry contracts for options.
For instance, NSE offers weekly options contracts for Nifty Financial index, Nifty index, Nifty Bank index and the Nifty Midcap index.
Different stock exchanges offer short tenure options contracts on indices which expire on every day of the week. A Sebi consultation paper has noted that there is hyperactive trading in index options on expiry day, with average position holding periods in minutes, accompanied by increased volatility in the value of the index through the day and at expiry. “All this has implications for investor protection and market stability, with no discernable benefit towards sustained capital formation,” Sebi said.The new rules are aimed at curbing aggressive retail trading in the futures and options segment, which is being largely channeled through speculative guesswork.
A recent Sebi study found that 1.13 crore retail F&O traders incurred a combined net loss of Rs 1.81 lakh crore in the last three financial years of FY22-FY24.
Apart from the above, Sebi has also brought in 5 new measures in a phased manner. With effect from November 20, the minimum contract size for index futures and options has been increased from Rs 5-10 lakh currently to Rs 15 lakh.
Further, the lot size shall be fixed in such a manner that the contract value of the derivative on the day of review is within Rs 15 lakh to Rs 20 lakh.
Other measures include the increase in tail risk coverage on the day of options expiry, intraday monitoring of position limits, removal of calendar spread treatment on expiry day and also upfront collection of option premium from options buyers.