In a move that could have significant implications across the derivative segment, the market regulator SEBI or the Securities and Exchange Board of India (SEBI) has mandated that only one weekly option contract per exchange will be allowed starting November 20, 2024. Currently, the National Stock Exchange (NSE) offers four weekly options, while the Bombay Stock Exchange (BSE) provides two. Both exchanges will need to select only one option contract to continue.
Streamlining Trading Processes and Enhancing Transparency
The measures aim to streamline trading processes and ensure better monitoring of intra-day position limits for equity index derivatives. This decision is part of SEBI’s broader effort to enhance transparency and manage risks within the equity derivative segment. As part of these changes, the value of index derivatives will see a substantial increase, rising from the current range of Rs 500,000–1,000,000 to a new range of Rs 1,500,000–2,000,000. This adjustment, according to SEBI, reflects a push towards a more robust trading environment.
Additionally, SEBI has reduced the number of expiries for derivatives contracts to one per exchange each week. The measures aim to streamline trading processes and ensure better monitoring of intraday position limits for equity index derivatives.
Deepak Shenoy, Founder and CEO of Capitalmind, commented on SEBI’s announcement, stating, “For those companies that wish to only provide passive investment schemes, the regulation easing and lower net worth thresholds will be useful, because the lower fees tend to stunt the returns on equity in such firms. It’s also useful to note that even current AMCs with passive schemes will see lower disclosure and reporting requirements. The contours of the new asset class are not yet known, and the conditions that will apply for such AMCs to offer such schemes have not been made available to the public. The products seem riskier but only marginally so, do not offer a profit share for the managers, and also may have to be specified by the regulator in detail before they can be offered. We’ll have to hold our opinion on this one till we see the fine print.”