Market constituents hope for change in Sebi's derivatives plans

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₹5 lakh cash or cash equivalent for either buying or selling options," said Rajesh Baheti, director, Crosseas Capital, one of India's largest arbitrage and jobbing firms. “Another suggestion is to have multiple index products expire on the same day in place of having just a single expiry per week per exchange." Baheti said these were part of his comments to Sebi's 30 July consultation paper titled “Measures to strengthen index derivatives framework for increased investor protection and market stability". Three of the most important recommendations of Sebi’s Secondary Market Advisory Committee (SMAC) are to increase the initial margin to trade, have only a single product expiry per week per exchange, down from the current five indices which expire each day of week, and increase in contract size from ₹5-10 lakh currently to ₹25-30 lakh.

The initial margin comprises Span and extreme loss margin (ELM). Span is the minimum margin prescribed by the exchange and ELM is over and above that to mitigate any mark-to-market losses. As per a discount broker, the initial margins for writing options on the expiry day could increase from the current 12-13% to as much as 20-21% if the measure is implemented.

A third broker, requesting anonymity, agreed with Baheti, saying that margins were meant for risk management and not to “control" volumes. “Our current margin system is robust. We hope that Sebi instead implements a product suitability framework, stipulating a threshold for retail participation in options trading like ₹5 lakh to trade," he said.