SEBI published new consultation paper on their official website for future and options trading, index traders, etc. Due to increased volumes in index options trading, SEBI conduct research on trading data provided by brokers.
SEBI find most derivatives traders lose money and take loan from bank again start gambling in market rather than investing into assets. SEBI finally came with consultation paper for index trading.
New Measures by SEBI for Future & Options
| Index | Measures |
|---|---|
| 1 | Rationalization of strike price for options |
| 2 | Upfront collection of options premium |
| 3 | Removing calendar spread for expiry day |
| 4 | Intraday Position strict monitoring |
| 5 | Minimum Control Size for Options |
| 6 | Rationalization of weekly options products |
| 7 | Increase margin for near expiry contracts |
Rationalization of Strike Price for Options
Nifty index have 50 rupees gap in strike price and when new month starts exchanges open 50 in the money ( ITM ) and 50 out the money ( OTM ) strikes and that could move index 7-8 % roughly. When any suddenly volume increases in OTM options exchanges open new options strikes for trading.
Main Problem
This causes high volatility in OTM options and many people make hero and zero trade and may lose money in that strategy.
Solution
Strike interval to be uniform near prevailing index price (4% around prevailing price) and the interval to increase as the strikes move away from prevailing price ( around 4% to 8%).
More than 50 strikes to be started for an index derivatives contract at the time of contract launch is prohibited.
Upfront collection of options premium
Currently only futures long and shorts, options short contract pay upfront margin for trading but option buyers don’t pay any required margin to exchanges.
Main Problem
Options prices depending on the moneyness move in a non linear way and thus carry very high implicit leverage. They causes very fast upper move and depreciation as well.
Solution
Broker need to collect margin for option buyers to take trades in indexes.
Intraday Position strict monitoring
Now broker monitor intraday positions of clients on end to day basis. These limits are monitored by MIIs Clearing Corporations/StockExchanges. But they don’t have rights to get open market details.
Main Problem
Main problem with that monitoring some clients take positions very fast means scalping and exit their trades very fast that causes zero trade at the end of day.
Solution
Now they have rights to monitor any clients trades in minutes/ hours basis. After adding more upfront capital SEBI want clear response from brokers. the position limits for index derivative contracts shall also be monitored by the clearing corporations / stock exchanges on intra-day basis.
