Measures to Strengthen Equity Index Derivatives Framework for Increased Investor Protection and Market Stability
Summary
This circular mandates the upfront collection of option premiums from buyers to mitigate intraday leverage risks. It removes calendar spread margin benefits on expiry days for contracts expiring that day to address basis risk. Additionally, it introduces intraday position limit monitoring and recalibrates minimum contract sizes for new index derivatives. Section 5.5 rationalizes weekly index derivatives by limiting exchanges to offering contracts for only one benchmark index with weekly expiry, effective November 20, 2024. Section 5.6 mandates an additional 2% Extra Margin Levy (ELM) on short options contracts during expiry days to cover tail risk, also effective from November 20, 2024. The document concludes with a summary table of effective dates for all proposed measures and directs stock exchanges and clearing corporations to implement these changes.
Text
it has been decided to mandate collection of options premium upfront from option buyers by the Trading Member (TM)/ Clearing Member (CM).
the upfront margin collection requirement shall also include net options premium payable at the client level.
this requirement would be applicable for equity derivatives segment from February 01, 2025.
the benefit of offsetting positions across different expiries ('calendar spread') shall not be available on the day of expiry for contracts expiring on that day.
On the day of expiry, the worst scenario loss... shall be calculated separately for contracts expiring on the given day and for the rest of the contracts.
existing margin calculations for calendar spread positions... shall remain unchanged for calendar spread positions involving all expiries other than the contracts expiring on a given day.
The aforesaid would be applicable for calendar spread positions in the equity index derivatives and shall be effective from February 01, 2025.
existing position limits for equity index derivatives shall henceforth also be monitored intra-day by exchanges.
Stock Exchanges shall consider minimum 4 position snapshots during the day.
the measure shall be effective for equity index derivatives contracts from April 01, 2025. Further, the existing framework of penalty structure for breach of end of day position limit shall be extended by exchanges for intraday position limit breaches as well.
a derivative contract shall have a value not less than Rs. 15 lakhs at the time of its introduction in the market. Further, the lot size shall be fixed in such a manner that the contract value of the derivative on the day of review is within Rs. 15 lakhs to Rs. 20 lakhs.
The measure shall be effective for all new index derivatives contracts introduced after November 20, 2024.
You have read the preview. Create a free account to read the full document and see every order that applied it.
Free accounts include 10 searches/day with full text access.
Source: SecMarx — Measures to Strengthen Equity Index Derivatives Framework for Increased Investor Protection and Market Stability. Verbatim text is public record; SecMarx structuring (linkage to applying orders) is cited to us.