01 Read
What happened
SEBI Chairman Tuhin Kanta Pandey stated the regulator is examining whether margin requirements for longer-term derivatives contracts can be reduced. The proposal comes despite persistently high losses among retail participants in the futures and options segment. SEBI has been tightening F&O norms since 2024, including raising lot sizes and limiting weekly expiries. This signals a possible calibrated easing for longer-dated contracts, which carry different risk profiles compared to near-term expiry instruments.
02 Understand
Why it matters
Margin requirements in derivatives trading are the upfront deposits traders must maintain to cover potential losses. SEBI mandates these through its regulatory framework for exchanges like NSE and BSE. Higher margins reduce leverage and limit speculative activity; lower margins make participation cheaper but increase risk exposure.
The proposed differentiation is conceptually important: longer-term derivatives contracts (say, monthly or quarterly expiries) tend to have lower daily volatility relative to near-expiry contracts, where gamma risk spikes sharply. A risk-calibrated margin framework would charge lower margins where time-value decay is more gradual and position risk is relatively contained.
This proposal exists within a broader regulatory arc. In 2024, SEBI introduced sweeping F&O reforms — increasing minimum contract lot sizes, reducing weekly expiries to one per exchange, and tightening upfront premium collection norms — all following a SEBI study that found over 93% of individual F&O traders incurred losses between FY22 and FY24. The new chairman's signal suggests SEBI is not abandoning this reform but refining it: discouraging short-term speculation while potentially encouraging longer-term hedging participation by lowering its cost.
For exam purposes, the key regulatory levers SEBI uses in derivatives markets include: margin requirements (SPAN + exposure), contract specifications (lot size, expiry), position limits, and disclosure mandates. Each of these has been active reform areas in recent SEBI circulars.
The proposed differentiation is conceptually important: longer-term derivatives contracts (say, monthly or quarterly expiries) tend to have lower daily volatility relative to near-expiry contracts, where gamma risk spikes sharply. A risk-calibrated margin framework would charge lower margins where time-value decay is more gradual and position risk is relatively contained.
This proposal exists within a broader regulatory arc. In 2024, SEBI introduced sweeping F&O reforms — increasing minimum contract lot sizes, reducing weekly expiries to one per exchange, and tightening upfront premium collection norms — all following a SEBI study that found over 93% of individual F&O traders incurred losses between FY22 and FY24. The new chairman's signal suggests SEBI is not abandoning this reform but refining it: discouraging short-term speculation while potentially encouraging longer-term hedging participation by lowering its cost.
For exam purposes, the key regulatory levers SEBI uses in derivatives markets include: margin requirements (SPAN + exposure), contract specifications (lot size, expiry), position limits, and disclosure mandates. Each of these has been active reform areas in recent SEBI circulars.
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