SEBI’s New Circular for F&O
The Securities and Exchange Board of India (SEBI) has released a new circular for the Futures and Options (F&O) segment, effective November 20. Here are the key changes:
Key Highlights:
1. Reduced Expiry Days: From five days a week to two days a week.
2. Increased Contract Size: From 5-10 lakhs to 15-20 lakhs.
3. Changes in Premium Calculation: New premium calculations for Future Buyers/Sellers and Option Buyers/Sellers.
Impact on Premium Calculation:
Example 1: Bank Nifty
– Current CMP: approximately 53,000
– Current Lot Size: 15
– Current Contract Size: 795,000 (53,000 x 15)
– New Contract Size: 15-20 lakhs (increased)
– New Lot Size: increased
Example 2: Reliance
– Current CMP: approximately 2900
– Current Lot Size: 250
– Current Contract Size: 725,000 (2900 x 250)
– New Contract Size: 15-20 lakhs (increased)
– New Lot Size: increased
New Premium Structure:
– Future Buyer/Seller: 2 lakhs to 6 lakhs (increased from 1 lakh to 3 lakhs)
– Option Seller: 1.5 lakhs to 3 lakhs (increased from 80,000 to 2 lakhs)
– Option Buyer: 40,000 to 1 lakh (increased from 20,000 to 60,000)
Important Points to Note:
1. Upfront Margin: Clients will now need to pay upfront margin, increasing the premium for Option Buyer/Seller/Future Buyer/Seller.
2. Extra Margin for Option Sellers: Additional margin requirements for Option Sellers.
3. Increased Lot Size: Lot size will increase, affecting trading costs.
4. Calendar Spread Expiry Removed: Spread hedging treatment will be removed.
5. Reduced Expiry Days: Only two expiry days per week.
6. Feb 2025 Changes: Option premium upfront collection from clients will begin, and calendar spread treatment will be removed.
These changes aim to enhance the stability and transparency of the F&O market. Market participants must adapt to these changes to navigate the new landscape effectively.
FAQs
Q: When will the changes take effect?
A: November 20.
Q: How will the changes affect trading costs?
A: Increased contract size, lot size, and premium calculations will increase trading costs.
Q: What is the impact on Option Sellers?
A: Increased premium and extra margin requirements.
Q: Will calendar spread treatment be removed?
A: Yes, effective February 2025.
Check out SEBI’s New Circular here