Sebi On Index Derivatives: Important Update on Contract Size Increase
Sebi's New Directive on Index Derivatives Contract Size
In a recent update, Securities and Exchange Board of India (Sebi) confirmed that the contract size for index derivatives will be raised to a minimum of Rs 15 lakh, effective from November 20, 2024. This increase, from the current range of Rs 5-10 lakh, is applicable to all new contracts that are introduced after the specified date.
This pivotal measure follows Sebi's October 16, 2023 circular, which sets out parameters for index futures and options. The previous limit, established back in 2015, has been reconsidered in light of the tripling of overall market values since then.
Why Increase Contract Size?
This recalibration of contract size is a response to the inherent risks linked with derivatives trading. Sebi aims to ensure that the appropriateness criteria for market participants are upheld. Furthermore, the regulation intends to reflect the shifting landscape of financial markets.
Impact on Retail Traders
- Study findings revealed that 1.13 crore retail futures and options traders collectively lost Rs 1.81 lakh crore over three years.
- Individual traders recorded an average loss of Rs 1.60 lakh during this timeframe.
- An alarming 93% of retail traders incurred losses averaging Rs 2 lakh each.
This decision aligns with Sebi's recent board meeting outcomes, where new high-net-worth investment opportunities were also approved.
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