SEBI tightens F&O rules to curb derivatives market frenzy, protect small investor
(SEBI) recently released a circular tightened the norms for equity derivatives (F&Os or futures and options) trading by raising the entry barrier and making it more expensive for retail investors to trade in F&Os. The new rules will come into effect from November 20, 2024.
SEBI has announced a set of six measures which include increasing the contract size for index futures and index options to Rs. 15 lakh from the present contract size between Rs. 5 lakh and Rs. 10 lakh, and rationalisation of weekly index derivatives products by allowing each exchange to provide contract for only one of its benchmark index with weekly expiry.
The move follows the government’s decision in Budget 2024-25 to raise the securities transaction tax on F&O trading (STT on futures from 0.0125 percent to 0.02 percent and that on options from 0.0625 percent to 0.1 percent). It is also in line with growing concerns within SEBI and the Reserve Bank of India that surging F&O volumes have started impinging on capital formation and posing a systemic risk to India’s economic growth.
F&Os are derivative contracts that derive their value from underlying assets that include stocks, commodities, currencies etc. Based on their expectation of future price movement, investors enter into a contract to buy or sell the asset in ‘lots’ (a lot has multiple units of the asset) by paying a small margin amount.
