Sebi's New F&O Regulations Shake Indian Stock Market

The Securities and Exchange Board of India (Sebi) has introduced stricter regulations for the Futures and Options (F&O) segment to curb speculative trading, resulting in a decline in stock prices for several broking firms. The measures include increased minimum contract sizes and stricter intra-day monitoring.

Shares of numerous stock broking firms saw a decline on Thursday as the Securities and Exchange Board of India (Sebi) implemented tighter regulations in the Futures and Options (F&O) framework to deter speculative trading.

SMC Global Securities fell by 4.29%, Aditya Birla Money decreased by 3.50%, while 5paisa Capital and ICICI Securities dropped by 2.91% and 2.38%, respectively, on the Bombay Stock Exchange.

Vinod Nair, Head of Research at Geojit Financial Services, noted that the new Sebi regulations in the F&O segment have sparked concerns about lower trading volumes across the broader market.

To rein in speculative trading, on Tuesday Sebi tightened the framework for equity index derivatives by raising the minimum contract size and requiring the upfront collection of option premiums.

Additional measures introduced by Sebi include intra-day monitoring of position limits, scrapping of calendar spread advantage on expiry day, rationalization of weekly index derivatives, and increased coverage for tail risks.

Implemented to protect investors and uphold market stability, particularly amidst the high-risk nature of index options trading on expiry days, these regulations will be phased in beginning November 20, as stated in a Sebi circular.

This new framework follows closely after a Sebi report on the F&O segment.

On the equities front, the BSE Sensex plunged by 1,769.19 points or 2.10% to settle at 82,497.10, while the NSE Nifty declined by 546.80 points or 2.12% to 25,250.10.

A recent Sebi study revealed that 93% of over 1 crore individual traders in the F&O segment incurred average losses of approximately Rs 2 lakh each, including transaction costs, from FY22 to FY24, accumulating total losses of over Rs 1.8 lakh crore.

According to a circular issued on Tuesday, Sebi increased the minimum contract size for index derivatives to Rs 15-20 lakh from Rs 5-10 lakh, last revised in 2015, aligning with market expansion.

Sebi stated that a derivative contract's value should not be less than Rs 15 lakh at its market introduction.

Regarding the rationalization of weekly index derivatives, Sebi noted that exchanges are to offer weekly expiry derivatives solely for one benchmark index to curb speculative trading.

(With inputs from agencies.)