Sebi seeks to tame speculation in index derivatives

India’s markets regulator, the Securities and Exchange Board of India (SEBI), on Tuesday proposed a series of near-term measures aimed at curbing speculative trading in index derivatives.

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These measures include limiting multiple option contract expiries and increasing the size of options contracts, signalling a significant shift in the regulatory landscape for derivative trading in India.

The Indian government has raised concerns about the risks associated with speculative trading by retail investors. To address these concerns, SEBI has proposed setting a minimum contract value of 1.5 to 2 million rupees ($18,000-$24,000) for derivative contracts. This threshold will be raised to 3 million rupees after six months. This step aims to ensure that only investors with sufficient capital engage in derivatives trading, thereby reducing speculative trading activities that could destabilize the market.

Additionally, SEBI proposed that weekly options contracts be limited to a single benchmark index per exchange. Brokerages will be required to collect option premiums upfront from their clients. An increase in margins on near-term expiries has also been suggested to further deter speculative trading.