Sebi Board Meeting: No changes to index derivatives framework

Market participants had been closely watching this meeting's outcome to see if the regulator would rollout a new framework to govern index derivatives.

In an anti-climax, the capital markets regulator did not make any changes to the index-derivatives rules.

The Securities and Exchange Board of India (Sebi) met with its Board on September 30. Market participants had been closely watching this meeting's outcome to see if the regulator would implement the proposals made through a consultation paper released a few months ago.

But no announcement was made on this front following the meeting.

On July 30, 2024, the regulator proposed tighter derivatives regulations to boost market stability and protect small investors, including increasing contract sizes by as much as four times, collecting options premium upfront and reducing the number of weekly contracts.

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Currently, there are index-based contracts that expire every day. The regulator is proposing to allow weekly contracts of one index of an exchange. If this comes to pass, there will be two expiries a week.

Moneycontrol had exclusively reported on July 9 that the regulator was considering a new framework based on the recommendations of the Working Committee on Futures and Options. Sebi had appointed an expert committee last month to address excessive speculation driven by high retail participation in recent years.

In the consultation paper, the regulator had also suggested reducing weekly option contracts.
The regulator has suggested increasing the contract size by multiple times, to make it harder for retail investors to participate in it or in a kind of "reverse sachetization". As the paper said, "Given the inherently higher risk in derivatives and the large amount of implicit leverage, increase in minimum contract size would result in reverse sachetization of such risk bearing products."

The consultation paper had also suggested other changes such as fewer strike prices, to stop people from gambling on cheap options on faraway strike prices.

To curb this, the consultation paper had suggested few changes such as strike interval be uniform near prevailing index price (4 percent around prevailing price) and the interval to increase as the strikes move away from prevailing price (around 4 percent to 8 percent); and not more than 50 strikes to be introduced for an index derivatives
contract at the time of contract launch.