Sebi’s New F&O Rules: Bigger Lots, Higher Margins to Shield Small Traders

Sebi's expert committee proposes stricter guidelines for retail investors in F&O, including larger lot sizes, higher margins, and fewer weekly options contracts to protect investors and reduce speculative trading.
Sebi's New F&O Rules: Bigger Lots, Higher Margins to Shield Small Traders

The Securities and Exchange Board of India’s (Sebi) expert committee on derivatives trading has proposed stricter guidelines for retail investors in futures and options (F&O). 

Recommendations include increasing lot sizes for F&O contracts, raising margins around expiry dates, and reducing the number of weekly options contracts. The committee, led by former RBI executive director G Padmanabhan, aims to protect retail investors.

The proposals will be discussed by Sebi’s Secondary Market Advisory Committee (SMAC) on July 15. The committee comprises broker associations, stock exchange officials, academicians, and a whole-time member of Sebi. Key proposals include increasing the lot size from the current ₹5 lakh to ₹20 to 25 lakh and reducing the number of weekly expiries to one per exchange.

Most proposals focus on increasing margins directly or indirectly by raising the minimum lot sizes, discouraging smaller investors from trading in F&O. Some decisions on tighter norms for derivatives trading may be taken later this month or in August, potentially before the Budget on July 23.

The committee’s recommendations come amid calls from regulators, exchanges, and Finance Minister Nirmala Sitharaman to limit retail participation in the F&O segment. Sebi chairperson Madhabi Puri Buch previously expressed concern over retail investors in derivatives, noting that 89% of them lose money.

The share of young individual traders (20-30 years) in equity F&O, particularly in index and stock options, has increased significantly, from nearly 11% in FY19 to over 35% recently. The number of individual traders in index options and stock options has risen by 8 and 5 times, respectively, in the past three years. The need for tighter norms in F&O is driven by the risks it poses to household savings.

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