SEBI New Rules for Future and Options Trading 2024 - English Language Article

Securities and Exchange Board of India (SEBI) has issued certain rules for Future and Options trading.

Due to high volume in Options trading and increase in loss to small investor, SEBI has decided to control the options trading. 

For this Purpose SEBI has issued certain rules. 5 most important announcement are given below:

SEBI makes it compulsory for every broker to collect upfront option premium from buyers before making any trade.

What it means?

- Traders must have cash balance in account before making any trader.

- Previously brokers are giving margin for trading in options on the security of shares held in demat which is now not possible from Feb 1, 2025.

- Intraday profits can't' be used for options trading.

Impact of this decision

Now investors can't make leverage position which will surely reduce losses. This rule is designed to promote better risk management.

Let us understand with example

Suppose Mr. A wants to buy a Nifty option with a premium of Rs. 20,000.

Under new rule, Mr. A must has Rs. 20,000 plus charges plus Margin (which may vary from 2 to 5 percentage) in his account.

And if he makes Profit of Rs. 5,000 on such transaction, such profits can't be used in next trade. It will be available next day.

This rule is applicable from Feb 1, 2025.

From November 20. 2024, each exchange can offer only one index expiry, rest index will be expired on monthly basis like Stock options.

What it means?

- NSE can conduct only one weekly expiry (Bank nifty or Nifty).

- BSE can conduct only one weekly expiry (Bankex or Sensex).

- Rest in Piece Midcap and Finnifty Weekly expiry.

Impact of this decision

- Heavy volume expected in Bank nifty or nifty and Bankex or Sensex.

- Chances of sideways trade is now minimum on expiry.

- No more losses in zero hero.

This rule is applicable from November 20, 2024.

From November 20, 2024, contract size of Options contract will be increased to ₹15 lakhs from ₹5 Lakhs.

This amount is considered at the time of launching of options contacts.

What is Contract Size?

Let us understand with example:

Suppose nifty is trading around 25,800 and lot size is 25.

Now in this case, contract size value will be 25,800*25 =₹6,45,000.

Impact of this rule

- There will be surely increase in lot size of Nifty and Bank nifty.

- Bank nifty may be 25 to 30 and nifty may be 50 to 75.

- More capital will be needed for options trading

This rule is applicable from November 20, 2024.

Calendar Spread is a trading technique in which a trade sells current month options (Call or Put) and buy next month options (call or put).

This is done to avail margin and reduce cost of trade.

We know than options selling requires huge margin buy buying a next month contract we can reduce our margin requirement.

Let us understand with example:

On expiry day Nifty is trading around 25,800 and at the month call option is Rs. 50.

At the end of the day call option premium will be zero if nifty closes below 25,800.

Options seller mainly bets on theta decay which is significant on expiry. But this requires huge margin.

If a trader wants to sale 25,800 call premium @ Rs. 50, he has to pay full margin i.e., 25,800*50 = Rs. 129000

But by buying a call options for next month, he can reduce his margin requirement to Rs. 20,000.

But this margin is not available from February 1, 2025.

Impact of this rule

- Range bound movement on expiry will be reduced.

- Range bound movement mainly happens due to blockage of index in a particular range by big players to get the benefit of theta decay.

This rule is applicable from February 1, 2025 and is applicable on expiry day only. On trading days other than expiry, traders will get margin benefit.

From 1 April, 2025 exchanges will check intraday position limit of traders.

What is means?

SEBI through exchanges and brokers will set an intraday limit on number of contracts that one trader can hold.

This rule is applicable for overnight trades only.

On intraday basis traders can hold more than allowed quantity.

This helps in reducing losses of traders due to over positioning.

This rule is applicable from April 1, 2025.