SEBI Committee's New Suggestions Could Hit Futures And Options Trading Volumes: Report

The Working Committee on Futures and Options, appointed by the market regulator Securities and Exchange Board of India (SEBI), has put forth crucial recommendations to regulate the surging derivatives volume. The proposed measures include an increase in the minimum lot size of derivative contracts and a limit on weekly options.

What Happened: The committee has suggested an increase in the minimum lot size of derivative contracts from ₹5 lakh to ₹20-30 lakh, according to a report by Moneycontrol. It has also proposed a restriction on weekly options to just one expiry per stock exchange per week, along with a limit on the number of strike prices for options contracts.

SEBI established the expert panel last month to address the issue of excessive speculation, which has been driven by high retail participation in recent years.

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Two significant suggestions from the group, if implemented, will have a substantial impact on volumes. The first is the sharp increase in contract size, which will make it unaffordable for small-ticket traders. The second is the limitation on the number of weekly expiries, which will reduce the scope for traders.

Other recommendations from the panel include fewer strike prices, upfront collection of option premiums from option buyers, intraday monitoring of position limits, and an increase in margin requirements closer to expiry.

The Secondary Market Advisory Committee will review these recommendations before a final decision is made.

The surge in derivatives volume in India has raised concerns, with many individuals resorting to borrowing money to trade options in hopes of making a quick profit. However, a study by SEBI shows that nearly nine out of 10 retail traders lose money on options trading.

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Posted In: GovernmentNewsRegulationsFuturesOptionsMarketsSEBI