Sebi to announce F&O curbs soon; changes to be enacted via circular

The much-awaited overhaul of derivatives trading criteria didn’t form part of the 17-point agenda of Sebi’s latest board meeting. However, regulatory sources said the curbs—first proposed through a discussion paper in July—could be enacted by way of a circular "soon."

The market regulator had proposed seven key measures to curb retail participation in index futures and options (F&O) to limit losses.

A source familiar with the developments said the consultation paper floated was in the form of a draft circular and not draft regulation. As a result, Sebi’s post-board meeting 23-page press release was silent on it.

Sebi whole-time member Ashwani Bhatia also affirmed that the changes might be issued soon to several news outlets in New Delhi on the sidelines of Local Governance Synergy Conclave, jointly organised by the Office of Comptroller and Auditor General of India (ICAI) and the Institute of Chartered Accountants of India (ICAI).

Market players, including the stock exchanges which will be impacted by the proposed changes, had submitted their suggestions on the higher entry barriers, limiting single benchmark per exchange for weekly expiry, and margin requirements.

The market regulator had received overwhelming response on the proposals and the F&O traders have been on the edge on the proposed changes taking the final shape.

Futures Industry Association (FIA), an global trade body representing interests of traders in the derivatives market, had also in its response recommended "cautious and conservative approach".  

"The potential for the proposed measures to inadvertently produce counterproductive outcomes should be thoroughly evaluated. For example, increased ELM (Extreme Loss Margin) measures could disproportionately penalize conservative options strategies (e.g., call, put, and calendar spreads), leading investors towards riskier strategies that now incur similar margin costs," submitted FIA. 

It added that a substantial reduction in expiries and strikes may concentrate the market in fewer financial instruments, limiting investor choice and impacting the precision and cost effectiveness of strategies.

In its board meeting held on Monday, the market regulator’s board—which has members from the Reserve Bank of India (RBI) and the government—gave nod to several key decisions including overhaul of investment advisor regulations, faster rights issue, pro-rata and pari-passu rights of investors of Alternative Investment Funds (AIFs).