Cost of taking positions in stock derivatives on expiry in stocks F&O will go up for traders. Market regulator Securities and Exchange Board of India (SEBI) has decided that calendar spread margin benefits will not be available on the expiry day for single-stock derivative contracts expiring on that day, aligning the rule with index derivatives. SEBI announced the change through a circular issued on Thursday.
A calendar spread margin benefit is a reduced, lower margin requirement granted by exchanges for simultaneously buying a long-term option or future and selling a short-term one with the same strike price. This strategy allows traders to benefit from the price difference (spread) between the two contracts, while also enjoying comparatively lower margin requirements due to its hedged structure.
Moneycontrol had exclusively reported on November 20 that SEBI was considering such a proposal. The change is aimed at reducing sudden margin spikes and mitigating risks for traders.
In its circular, SEBI stated that “on the basis of references received from trading members regarding possible risks emanating from calendar spread benefits on the expiry day for single stocks, and subsequent deliberations with the Secondary Market Advisory Committee (SMAC) of SEBI, it has been decided that the benefit of offsetting positions across different expiries shall not be available on the day of expiry for contracts expiring on that day for single-stock derivatives.” However, SEBI clarified that existing margin calculations for calendar spread positions will remain unchanged for positions involving expiries other than the contracts expiring on a given day.
What will change?
If monthly expiries fall on the 29th (current month), 30th (next month), and 31st (far month), calendar spread positions involving contracts expiring on the 29th and 30th, or the 29th and 31st, will not be eligible for calendar spread treatment on the 29th (current month expiry). However, calendar spread positions involving contracts expiring on the 30th and 31st will continue to receive calendar spread treatment on the 29th.
In the absence of such measures, SEBI noted that there is a risk of a sudden increase in margins on the day following the expiry of one leg of a calendar spread position, with limited recourse available to trading members in cases of margin shortfall or significant adverse price movement in the open leg.
What was the risk?
Currently a client with hedged position in stock derivatives on an expiry day continues with the benefit of lower margin requirements until market close at 3:30 PM. However, after the market close the margin requirement increases substantially due to expiry of one leg, leaving the other leg open. The problem faced by brokers is that, the market is already closed and brokers can only request clients to provide End of Day (EoD) margin after the market close.
SEBI said the changes will align the calendar spread treatment for single-stock derivatives with that of index derivatives and provide sufficient time to end clients and trading members to bring in additional margin on the expiry day or to roll over or close calendar spread positions.
The new rules will come into effect three months from the date of the circular, that is, May 5, 2026.
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