MUMBAI: Markets regulator Sebi on Tuesday proposed at least seven important measures – including a six-fold hike in minimum value of contracts to Rs 30 lakh – aimed at curbing speculative trading in index derivatives trading. For about a year now, govt functionaries and the market regulator have been warning about excessive speculation in the futures & options (F&O) segment of the market that could hurt even the economy.
Within hours after Sebi chief said that a consultation paper was on its way to address the growing concerns about excessive rise in F&O volumes, Sebi released the paper on Tuesday. This is the first definitive move by Sebi to curb the excesses in the space.
In the consultation paper Sebi proposed that it intends to increase the minimum size of index options contracts to Rs 15 lakh to Rs 20 lakh in the first phase. This could, after six months, go up to Rs 30 lakh, from Rs 5 lakh now. This is aimed at curbing traders who come to the F&O space with a very small amount of funds.
It also proposed that an exchange would be allowed to launch options contracts which expire every week on only one index. At present an exchange can launch weekly options on multiple indices, expiring on various trading days of the week.
Sebi is also proposing to limit the total number of contracts that all the clients of a large broker can take on the day of expiry of F&O contracts. In India, usually monthly contracts expire on the last Thursday of the month while weekly contracts expire on a pre-specified day of the week.
The consultation paper also proposed that brokers should collect options premium from their clients on an upfront basis. Currently brokers often allow their clients to leverage their trades using their (brokers’) own money on an intra-day basis. Sebi is proposing to curb this practice.
The regulator is also proposing to limit the number of strike prices on the expiry day. Sebi data showed that on expiry day several trades take place at prices at which the buyers mostly lose money while most sellers make money. Such prices are called out of the money strike prices. This trend indicates extreme forms of speculation and hence the Sebi proposal to limit the number of strike prices, market players said.
Last week the Budget proposed to sharply hike securities transaction tax (STT) on derivatives trading. In the run up to the Budget, over the last few months, the finance minister Nirmala Sitharaman, the Sebi chairperson Madhabi Puri Buch and chief economic advisor to the country V Anantha Nageswaran, on different occasions had warned about the excesses observed in the F&O trading space.
Within hours after Sebi chief said that a consultation paper was on its way to address the growing concerns about excessive rise in F&O volumes, Sebi released the paper on Tuesday. This is the first definitive move by Sebi to curb the excesses in the space.
In the consultation paper Sebi proposed that it intends to increase the minimum size of index options contracts to Rs 15 lakh to Rs 20 lakh in the first phase. This could, after six months, go up to Rs 30 lakh, from Rs 5 lakh now. This is aimed at curbing traders who come to the F&O space with a very small amount of funds.
It also proposed that an exchange would be allowed to launch options contracts which expire every week on only one index. At present an exchange can launch weekly options on multiple indices, expiring on various trading days of the week.
Sebi is also proposing to limit the total number of contracts that all the clients of a large broker can take on the day of expiry of F&O contracts. In India, usually monthly contracts expire on the last Thursday of the month while weekly contracts expire on a pre-specified day of the week.
The consultation paper also proposed that brokers should collect options premium from their clients on an upfront basis. Currently brokers often allow their clients to leverage their trades using their (brokers’) own money on an intra-day basis. Sebi is proposing to curb this practice.
The regulator is also proposing to limit the number of strike prices on the expiry day. Sebi data showed that on expiry day several trades take place at prices at which the buyers mostly lose money while most sellers make money. Such prices are called out of the money strike prices. This trend indicates extreme forms of speculation and hence the Sebi proposal to limit the number of strike prices, market players said.
Last week the Budget proposed to sharply hike securities transaction tax (STT) on derivatives trading. In the run up to the Budget, over the last few months, the finance minister Nirmala Sitharaman, the Sebi chairperson Madhabi Puri Buch and chief economic advisor to the country V Anantha Nageswaran, on different occasions had warned about the excesses observed in the F&O trading space.
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