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The Securities and Exchange Board of India (SEBI) has to improve the framework for index derivatives to increase investor protection and market stability. The measures are the result of discussions with stock exchanges and clearing corporations after comments on a .

The measures are intended to tackle issues such as heightened activity in index options on expiry day, ensuring risk hygiene and continued stability and appropriateness of index derivatives segments.

The framework on index derivative contracts includes the following provisions:

1. 1. Optimum premiums shall be collected upfront from option buyers.
      This ensures that the client does not suffer any undue intraday leverage and also discourages allowing any positions beyond the collateral at the end client level. This will take effect on 1 February 2025.

1. 2. Removal of calendar spread benefit on expiry day.
      This aims to reduce the risks of speculative trading before expiry of options contracts and comes into effect on 1 February 2025.

1. 3. Intraday monitoring of existing position limits for index derivatives.
      This intends to eliminate the risk of possibly undetected intraday positions beyond permissible limits. Stock exchanges are to consider a minimum of four random snapshots of their choice. This takes effect on 1 April 2025

1. 4. Derivative contracts introduced to the market cannot be less than INR1.5 million (USD17,849). The lot size must be fixed on the day of the review, with the value of the derivative between INR1.5 million to INR2 million. This provision ensures stability for participants and takes effect for new contracts introduced after 20 November 2024.

1. 5. Rationalisation of index derivative products expiring weekly and increases to the tail risk coverage. Stock exchanges offer weekly expiry index derivatives contracts in addition to the monthly contracts. Expiry of weekly contracts occurs every day of the week between various indices, which results in speculative money moving from one expiry of an index to another in a day. The new provision will see weekly options contracts on a single benchmark index of an exchange. The tail risk coverage has been increased through levying additional extreme loss margins of 2% for short option contracts. Both of these measures take effect on 20 November 2024.