Capital markets regulator Securities and Exchange Board of India (SEBI) has mandated a new framework for India’s booming equity derivates market and announced sweeping changes to curb the rush in futures and options (F&O) trading. Commenting on the market watchdog’s new F&O norms, Deepak Shenoy, founder and chief executive officer (CEO) of SEBI-registered Portfolio Management Service (PMS) Capitalmind.in, said that SEBI has “changed the F&O game”.
Taking to microblogging platform ‘X’ (formerly Twitter), Shenoy said, “The boring stuff: Options to be paid upfront: Option premiums have to be paid by options buyers. Sounds obvious, but currently, intraday, the exchanges just block the broker’s collateral for options bought, which therefore allows one person to effectively buy and sell intraday using another person’s collateral.”
“This must be a few brokers that provided this facility to allow mad intraday options buy positions. From Feb 2025, this won’t happen – clients will have to pay up from their money for such purchases,” said Shenoy.
Shenoy added, “No Calendar spread on expiry day: You can sell an option on expiry day and buy a futures or options for a later expiry (like sell weeklies, keep a monthly buy on a different strike or so).”
According to the market expert, this provides a “calendar spread” benefit that reduces margins by as much as 50 per cent. “This lower margin allows a person with X lakh rupees in margin to take two times the position as he would without the calendar spread benefit. And SEBI doesn’t like it. So they’ve removed the spread benefit only for expiry day (if one leg of any spread expires that day only),” said the expert.
According to Shenoy, this is not a bad idea, as there was a large amount of retail scalping happening on daily options expiries, especially selling straddles. There is systemic risk in case the offsetting calendar option doesn’t move anywhere close to the expiring one (can happen in case of sudden spikes) – which makes sense on expiry day because max trading happens there.
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