Cost of taking positions in stock derivatives on expiry day may go up for traders. Market regulator Securities and Exchange Board of India (SEBI) is likely to remove the benefits of calendar spread for single stock derivatives. As per sources the issue was discussed with exchanges, clearing corporations, brokers and other stakeholders recently.
A calendar spread in Futures & Options (F&O) trading involves taking opposite positions in contracts of the same underlying asset but with different expiry dates. 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.
As per sources, SEBI had received representation from market participants to remove calendar spread benefits for stock futures and options as well like the index derivatives.
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The representation stressed on the issue that, 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.
In this situation there can be serious repercussions said one person aware of the discussions, “As if the client fails to provide additional margin, broker can not square off clients position for short fall of margin as markets are closed. Secondly, the remaining part of the earlier hedged position becomes unhedged remains open with very less margin creates risk in case of overnight price movements”.
After market participants feedback SEBI has discussed the proposals with clearing corporations. As per a note seen by Moneycontrol, the proposal stated, “Clearing corporations (CCs) to remove the calendar spread benefit to stock derivatives on expiry day as is being currently done for equity index derivatives”. The note further added, “The calendar spread benefit in margining framework across different expiry contracts can be done away with on expiry day”.
If the proposal is cleared then traders of single stock derivatives will be required to maintain margin for both the expiring and the remaining contracts on the expiry day and increasing the capital required to take the position.
After deliberations are complete SEBI may bring up the proposal for broader feedback in the form of consultation paper.
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SEBI had discontinued the benefit of calendar spread on index derivatives from February 1, 2025 as a part of six-point measure to curb unwanted speculation in index derivatives. As SEBI had observed that, expiry days can see significant risk, as the value of a contract expiring on the day can move very differently from the value of similar contracts expiring in future.
The new proposal will align the calendar spread treatment for single stock derivatives with Index derivatives and cross margin framework for Index derivatives.
An email sent to SEBI seeking comments did not elicit any response.
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