SEBI Tightens F&O Rules: New Derivatives Regulations Effective from November 20, 2024 {update}

Last updated on July 11th, 2025 at 07:25 pm

SEBI introduces new F&O regulations, increasing contract sizes and tightening rules for weekly expiries, effective November 20, 2024.

On October 1, 2024, SEBI (Securities and Exchange Board of India) announced significant changes in the derivatives market to enhance investor protection and market stability. These changes, effective from November 20, 2024, include tightening rules for Futures & Options (F&O) trading and introducing new measures to regulate speculative trading.

Key Changes in F&O Rules:

1. Rationalization of Weekly Expiries: SEBI has decided to allow only one benchmark index per exchange for weekly derivative contracts. This change aims to reduce speculative trading on expiry days, as the regulator has observed increased volatility and highly speculative activities on these days.
2. Increase in Contract Sizes: One of the major changes is the tripling of contract sizes. The minimum trading amount for derivatives, which was previously between Rs 5-10 lakhs, has now been raised to Rs 15 lakhs. The lot sizes will be set such that the contract value stays between Rs 15 lakhs and Rs 20 lakhs. This increase in contract size is intended to make derivatives trading more suitable for serious investors, reducing the number of small, highly speculative trades.
3. Tail Risk Coverage on Expiry Day: To cover the heightened speculative risks, SEBI has introduced an additional 2% Extreme Loss Margin (ELM) on short options contracts expiring on the same day. This means that traders holding open short options on the day of expiry will need to cover an extra margin, which aims to reduce the chances of losses due to extreme market volatility.
4. New Derivative Contracts: SEBI also mentioned that new derivative contracts introduced after November 20 will follow these rules, ensuring a smooth transition for traders and exchanges. This includes a recalibration in contract size for all new index derivatives to align with the new trading limits.

Future Changes (Starting in 2025):

SEBI’s measures don’t stop here. Some additional changes are slated for early 2025:

• Upfront Collection of Option Premium: Starting February 1, 2025, traders buying options will need to pay the premium upfront. This measure will prevent undue leverage and excessive risk-taking by ensuring that buyers have the necessary collateral.
• Removal of Calendar Spread Treatment on Expiry Day: This change, also effective from February 1, 2025, aims to mitigate risk by preventing the offsetting of positions on the same day they expire. It will align with SEBI’s existing cross-margin framework.
• Intraday Monitoring of Position Limits: Effective from April 1, 2025, exchanges will begin monitoring position limits on an intraday basis. This will involve taking at least four random snapshots throughout the trading day to ensure that no trader exceeds their limits during the course of the day.

Purpose Behind the Changes:

The reason behind these new regulations is SEBI’s concern over the increased retail participation and speculative activities in the index derivatives market, particularly on expiry days. The large trading volumes during these periods, driven by speculation, have led to volatility in the market. SEBI’s goal with these measures is to create a more stable market environment where trading is more balanced and less prone to wild swings due to speculative bets.

By implementing these new measures, SEBI aims to better protect investors, especially smaller ones, while ensuring that the derivatives market remains a reliable platform for hedging risks and price discovery.

SEBI New Circular Pdf

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