Winning Bizness Desk
Mumbai. The Securities and Exchange Board of India (SEBI) has proposed significant changes to the regulation of futures and options (F&O) trading in the stock market, aiming to protect retail investors from substantial losses and curb excessive speculation.
New Measures to Curb Speculative Trading
In response to increasing concerns about retail investor losses in F&O trading, SEBI has suggested tightening the rules for index derivatives. The proposed amendments include raising the minimum contract size and increasing the upfront margin required for option premiums. This move follows the recent decision to hike the Security Transaction Tax (STT) on F&O transactions, a measure introduced in the Union Budget to address the growing interest in derivatives among retail traders.
Concerns Over Speculative Trading
The Economic Review Report 2023-24 highlighted the risks associated with speculative trading, noting that such practices are unsuitable for a developing market. SEBI’s consultation paper proposes several changes, including:
- Rationalizing weekly index products.
- Monitoring trading activity more closely.
- Ensuring fair pricing.
- Eliminating calendar spread benefits on settlement days.
- Increasing the margin requirements for contract expiration.
SEBI has invited public comments on these proposals, with a deadline set for August 20.
Increased Cost of Trading
The proposed changes will significantly impact the cost of trading. SEBI plans to revise the minimum lot size for index derivative contracts in two stages. Initially, the minimum contract size will be raised to between ₹15 lakh and ₹20 lakh. After six months, this minimum size will further increase to between ₹20 lakh and ₹30 lakh. These measures are designed to ensure that only well-capitalized investors engage in F&O trading, thus reducing the risk of significant losses and mitigating speculative trading practices.
