New F&O rule to come into effect from Thursday, Nov 21; here's what changes

All new futures & options contracts to be introduced from November 21, 2024 will have an increased Lot Size owing to meet the Sebi mandate on higher contract value.

The Securities and Exchange Board of India (Sebi), in its bid to curb excessive speculation in the futures & options (F&O) segment had proposed six key measures, which shall take effect from November 21, 2024.  Originally, the proposed changes were to take effect from Wednesday, November 20, 2024 onwards. However, because of the trading holiday the new F&O rules or the new norms for the derivatives segment will now come into effect from Thursday, November 2024 onwards.  Based on the suggestions from market participants, and subsequent review by an expert working group and the secondary market advisory committee, Sebi had revised the minimum contract value to Rs 15 lakh as against Rs 5 - Rs 10 lakh at present, among other key changes.  The revision in contract value has a direct corresponding impact on the available Lot Size. Thus, the Lot Size of newer introduced F&O contracts will be in the price range of Rs 15 - Rs 20 lakh.  “It has been decided that a derivative contract shall have a value not less than Rs 15 lakh at the time of its introduction in the market. Further, the lot size shall be fixed in such a manner that the contract value of the derivative on the day of review is within Rs 15 lakh to Rs 20 lakh,” said Sebi in the circular dated October 1, 2024.  To meet this criteria, NSE and BSE will revise the lot sizes for all new index F&O contracts introduced from November 21, 2024, onwards, said Zerodha in an update. 

 

    All existing weekly and monthly contracts will continue with the current lot sizes until they expire, the low-cost brokerage firm stated.  Going ahead, for quarterly and half-yearly contracts - the lot size for Nifty, Bank Nifty and Sensex shall change at the end of day's trade on December 26, 2024; December 24, 2024 and December 27, 2024.  Among other Sebi measures, BSE and NSE have already complied with the order to have only 1 weekly contract expiry. The NSE has kept Nifty, while the BSE continues with Sensex.  Brokerages are also directed to collect upfront margin on all option buyers in order to prevent undue intraday leverage.  In case of an option Sell side trade, an Extreme Loss Margin (ELM) of 2 per cent will be applicable on the expiry day to cover potential risks due to increased volatility.  And finally, as per Sebi new F&O rules, clients can henceforth hold only up to 5 per cent of the total number of all derivative contract of any particular underlying. In case of a broker, the cap stands at 15 per cent.