Sebi planning series of tweaks to address option trading risks: Report

The changes will be aimed at addressing risks arising from explosive growth in options trading.

India's markets regulator Sebi is reportedly considering a series of tweaks to its derivative trading rules. The changes will be aimed at addressing risks arising from explosive growth in options trading and could include higher margins for options contracts and more detailed disclosures, news agency Reuters reported.

SEBI logo outside the regulators’s office. (HT photo)

Citing people in the know, the report claimed that changes are being considered after a series of meetings with exchanges, brokers and fund houses over the past four months. This comes as trading in index and stock options has soared in India in the last few years owing to retail investors.

This has resulted in warnings from market participants and government officials while the notional value of index options traded more than doubled in 2023-24 to $907.09 trillion from the year before.

A source told Reuters that “there was a need for appropriate risk disclosure and steps to prevent excessive speculation or possible manipulation.” In this, “the first step the regulator is considering is a linking of options trading with underlying cash volumes in a stock, to contain the build-up of open positions in less liquid stocks”, as per the report.

The sources added, “In cases where there is excessive build-up of options positions relative to cash volumes, the margin requirement for trading options would increase.”

This comes as earlier this month, Sebi suggested tighter rules for individual stock derivatives which would weed out derivatives linked to illiquid stocks when implemented. The changes are in the discussion stage and will be put up for public consultation over the next few months, the report claimed.