Sebi weighs margin cut for non-expiry F&O trading boost

India’s capital markets regulator is likely to reduce margins on equity derivatives on non-expiry days to encourage big traders to place longer-term bets rather than focus solely on the expiration day, said two people aware of the development.

- Ram Sahgal & Apoorva Ajith

A margin is paid to initiate a derivatives trade.

(REUTERS)

A margin is the amount that an investor must pay upfront to initiate a trade in the derivatives segment. The Securities and Exchange Board of India’s (Sebi’s) move to cut these margins could deepen the derivatives markets, where most of the trading by large, high-frequency and proprietary traders as well as individual investors takes place on the expiry day of weekly option contract.

“The RMRC (Sebi’s risk management and review committee) is discussing a rationalisation of margins as the current ones can discourage long-term traders, especially on non-expiry days,” said one of the persons cited above.

The second person said Sebi would seek feedback from market participants on these changes.

Queries emailed by Mint to Sebi did not elicit a response.

Indian exchanges require clients to post both SPAN (standard portfolio analysis of risk) margin and extreme-loss margin (ELM) through their brokers to take derivative positions, rather than just the SPAN margin, which is the standard practice globally.