Sebi’s 7-step plan to fortify F&O framework: Is it feasible?
Sebi's 7-point proposal is driven by the need to address emerging risks and challenges in the index derivatives market. By implementing these measures, the regulator aims to enhance retail investor protection by reducing complexity and risk, promote market stability by discouraging excessive speculation by retail investors and encouraging meaningful market participation and support market growth by promoting investor confidence and participation.
Let’s have a look at how the proposed measures will impact the ecosystem:
1. Rationalization of Options Strikes
SEBI proposes to rationalize weekly / monthly index options contract strike price to be uniform up to 4% around prevailing index price and beyond to ensure fewer strikes further away from prevailing index price. In my opinion this would be practically not feasible for implementation the reason being say if any investor took position in a particular strike price on a particular day and time and later there is movement in prevailing index price then the current one may go beyond 4% and then now the issue will be whether this strike will be continued or not, if not to be continued then it cannot be forcefully close down and if continued lots of strike prices will remain in market beyond 4% as per the movement of prevailing index price and these may become illiquid and prone to manipulation making further losses to investors which is being targeted to be safeguarded. Hence this does not seem to feasible and should not be implemented.
2. Upfront Collection of
