NEW SEBI RULES: The Good, Bad & Ugly!
Summary
TLDRIn this episode, PR Su discusses the latest SEBI regulations, particularly focusing on six major changes. Key topics include an increase in contract size, a 2% extra margin on expiry day, and new rules about weekly expiries. These changes primarily affect small option sellers and buyers, with professional option sellers remaining largely unaffected. The episode highlights the potential disadvantages for option buyers and the market dynamics that will shift due to these changes, while also touching on minor regulatory updates effective from 2025.
Takeaways
- 💼 The contract size for options trading has increased from a minimum of ₹5 lakhs to ₹15 lakhs, impacting small traders more than larger ones.
- 📊 The increase in contract size doesn't triple the Nifty and Bank Nifty lot sizes but roughly doubles them, reducing the impact on traders.
- 🙋♂️ Small option sellers may be forced to switch to buying, as they can no longer afford the larger contract sizes, which is unfavorable for them.
- 📉 Option buyers will be at a disadvantage since they will now have to purchase cheaper, further out-of-the-money options, reducing their chances of winning.
- 💸 An additional 2% margin is required on expiry days, increasing the cost of intraday trading for sellers but leaving buyers unaffected.
- 📅 Exchanges will be limited to offering one weekly expiry per exchange, likely retaining Bank Nifty on NSE and Bankex on BSE, reducing the number of trading opportunities.
- 📈 The increase in margin requirements and fewer expiries might push up option premiums, affecting option buyers by increasing the cost of their trades.
- 🔄 Traders with existing positions before November 20 must adjust their portfolios to avoid odd lot sizes due to the upcoming contract size changes.
- 🧾 From February 2025, upfront collection of premiums from buyers will be mandatory, although this won't drastically affect regular traders.
- ⚖️ The calendar spread benefit will no longer apply if one leg expires on the same day, though this change is minor and will mostly affect advanced traders.
Q & A
What is the first major change introduced by SEBI as discussed in the video?
-The first major change is the increase in the contract size from a minimum of 5 lakhs to a minimum of 15 lakhs.
Why does the speaker believe the increase in contract size is not as drastic as it seems?
-The speaker explains that while some may expect the contract size to increase threefold, it will likely only increase by about 2.2 to 2.25 times, depending on the trading price of Nifty and Bank Nifty.
How will the contract size change impact traders who trade in large quantities?
-Traders who trade in large quantities (e.g., 10 or 100 lots) will adjust their positions by trading fewer lots. For example, someone who previously traded 10 lots may now trade 5 lots.
How will small option sellers be affected by the contract size increase?
-Small option sellers who only trade one lot may struggle because they cannot trade half a lot. This change may push them to become option buyers.
What impact will the contract size increase have on option buyers?
-Option buyers may be forced to buy options at farther strike prices due to the increased cost of options. This will reduce their probability of making a profit.
What is the second major change discussed, and how will it affect traders?
-The second major change is the introduction of a 2% extra margin on expiry day. This will primarily affect intraday traders who trade on expiry days, as it will increase their required margin by 2%, reducing their potential return on investment.
What is the third major change introduced by SEBI?
-The third major change is that exchanges are now allowed to keep only one weekly expiry per exchange. This means traders can no longer trade expiries on multiple days across the week, reducing their trading opportunities.
How will the change to weekly expiries affect intraday traders versus positional traders?
-Intraday traders, who often trade multiple expiries during the week, will face reduced opportunities and higher margin requirements. Positional traders, on the other hand, will be less affected, as they tend to hold trades for longer periods and adjust positions accordingly.
What advice does the speaker give regarding positions held before the November 20 changes?
-The speaker advises traders to review their portfolios before November 20 to ensure their holdings align with the new contract sizes, as odd-lot positions may need to be adjusted to avoid complications in trading or squaring off.
What are the three minor changes effective from 2025, and why are they considered less significant?
-The three minor changes effective from 2025 are upfront collection of option premium from buyers, intraday position limits monitoring, and calendar spread benefit adjustments. These changes are considered less significant because they will have minimal impact on the majority of traders and are more applicable to niche trading activities.
Outlines
📊 SEBI Rule Change: Contract Size Increase
PR Su discusses the increase in contract size from 5 lakhs to 15 lakhs, explaining the reasoning behind it. While some people fear the contract size will triple, the actual change will be closer to 2.2 times due to Nifty's current trading levels. For Bank Nifty, the change will double. This change affects smaller option sellers the most, as they can no longer trade with minimal capital, while bigger players are less impacted. Small sellers might shift to becoming option buyers, which puts them at a disadvantage since they’ll have to buy options further away from the strike price, reducing their chances of winning.
📉 Option Buyers' Challenges: Farther Strike Prices
PR Su explains how increasing the lot size affects option buyers negatively. Buyers with limited capital will be forced to buy cheaper options with farther strike prices, reducing their probability of profiting. The increase in lot size benefits sellers, while buyers are likely to lose more. This rule, which raises the lot size to 15 lakhs, is mostly harmful to option buyers who will struggle to maintain their usual positions.
📈 Expiry Day Trades: New 2% Margin Rule
SEBI introduces a 2% extra margin requirement on expiry day. While it was initially proposed to be 3% before expiry and 5% on expiry, SEBI settled on 2%. This mainly affects intraday traders who rely on daily expiry trades. PR Su explains how margin increases will cut into the profits of traders, particularly those who trade every day on expiries like Nifty and Sensex. For example, a 10-lakh contract with a 10% margin now requires an extra 20,000 INR, reducing the trader’s return on investment.
💼 Margin Impact on Sellers and Premium Changes
The extra margin requirement will force option sellers to demand higher premiums to maintain their return on investment. This could lead to increased option premiums, which again disadvantages buyers who will have to pay more. For example, a seller who previously accepted 1,000 INR for an option may now demand 1,200 INR, as they need to cover the higher margin costs. PR Su also notes the change to only one weekly expiry per exchange, with NSE likely to retain Bank Nifty.
📅 One Weekly Expiry Rule and Its Impact
With only one weekly expiry allowed per exchange, NSE is likely to keep Bank Nifty, while BSE might retain Bankex. Intraday traders who thrive on multiple expiries will be most affected, as they now have fewer trading opportunities. However, PR Su highlights that positional traders, like himself, who don’t rely on daily expiries, will remain largely unaffected. The 2% extra margin on expiry day still applies, but otherwise, the impact is minimal for longer-term strategies.
💸 Lot Size Adjustments and Odd Lots Warning
PR Su advises traders to be cautious about their current positions before November 20, when the lot sizes will change. Traders holding positions that don’t align with the new lot sizes (e.g., having 50 when the new lot is 60) will face challenges, as they won't be able to trade odd lots. He recommends adjusting positions in advance to ensure they align with the new contract sizes and avoid difficulties when squaring off trades.
🔐 New Rules for 2025: Minor Changes for Buyers and Sellers
Looking ahead to 2025, SEBI will introduce a few minor changes, including the upfront collection of option premiums from buyers and new intraday position limits. PR Su clarifies that these are not major concerns for most traders, as brokers already enforce similar rules. The calendar spread benefit will also be limited to certain conditions, but this doesn’t impact the majority of retail traders.
🎲 The Future of SEBI Rules: Professional Sellers vs Gamblers
PR Su concludes by emphasizing that professional option sellers won’t be significantly impacted by SEBI’s new rules. However, intraday traders and those with a gambling mentality—who trade on daily expiries—will face more restrictions and costs. He views the changes as a way to reduce reckless trading behavior while maintaining fairness for more disciplined traders. Option buyers, especially those trading on expiry day, will continue to be at a disadvantage.
Mindmap
Keywords
💡SEBI Rules
💡Contract Size
💡Lot Size
💡Option Seller
💡Option Buyer
💡Margin Money
💡Expiry Day
💡Weekly Expiry
💡Intraday Trading
💡Positional Trade
💡Odd Lot
💡Calendar Spread
Highlights
SEBI introduces new rules affecting option traders with six major changes.
Contract size increases from a minimum of 5 lakhs to a minimum of 15 lakhs.
Government agencies often prepare market participants for such changes well in advance.
The Nifty contract size may increase from 25 to 60 lots, a 2.2-2.25 times increase.
Bank Nifty contract size may change from 15 to 30 lots, doubling rather than tripling.
Small option sellers may be negatively impacted as they cannot trade fractional lots.
The rule is expected to harm option buyers, especially those with smaller budgets.
An additional 2% margin money is required on the day of expiry, slightly less than earlier proposed amounts.
This extra margin will likely reduce the return on investment for intraday traders.
Exchanges will now offer only one weekly expiry per exchange, reducing five different expiries to two.
Option premiums may rise slightly due to increased margin money requirements, further disadvantaging option buyers.
Positional traders remain largely unaffected by these changes, aside from the additional expiry-day margin.
From November 20, traders need to adjust positions to align with the new lot sizes to avoid odd-lot issues.
The upfront collection of option premiums from buyers, effective from February 2025, won't significantly impact most traders.
The calendar spread benefit remains available unless one leg expires on that particular day, affecting few traders.
Transcripts
hi this is PR Su welcome to the special
episode where we are going to talk about
the new sebi rules the good and bad the
first change there are six major changes
the first one is the contract size
increase from minimum 5 lakhs to minimum
15
L what usually the government agencies
they do uh when they do it something you
know it that can be a n reaction you
know they don't want to bring abrupt
changes so they prepare the
people uh even before the
event so that is why if you can remember
they were saying that you know they
formed a committee that committee
recommended 20 lakhs to 30 lakhs as the
minimum CR IA but now the CB has
announced that it is 15 lakh so the
people will think you know okay it's
better than expected so that is how the
government agencies work you know so
therefore you know so there is no
surprise in this uh but what will be the
impact of this change number
one uh the impact will be the Nifty now
the lot size is
25 the people think you know if 5 lakh
minimum change to 15 lakh the people
think contract size will become three
times that may not be
true because Nifty right now trading
around
25,800 so w contract sizes are roughly
about 6 lakh
Plus so if they change to 75 that is
three times then the contract size may
be uh 18 lakh plus around 19 lakh plus
so instead of doing that they may change
the contract size to 60 so 60 into
226,000 will be more than 15 lakh so
therefore it is actually not three times
it's about uh 2.2 times or 2.25 times
look at the bank Nifty Bank Nifty uh I
think it is trading above 50,000 so the
contract size is 15 now now so 15 into
50,000 7.5 lakh plus so to make it
minimum 15 lakh so they do not have to
increase the lot size by three times
they just need to increase only two
times so if my guess is right you know
going forward the Nifty lot size may be
change from 25 to 60 the bank Nifty lot
size may be change from 15 to 30 so
therefore it's not a very big change
now what are the
impacts number one people big people
always they don't do one lot they always
do 10 Lots 20 Lots right if the contract
size doubles somebody who is doing 10
Lots he will be doing five Lots somebody
doing 100 Lots he will do 50 Lots so who
will be affected the guy who is doing
only one lot the guy doing only one lot
now he cannot do half a
lot so very very very
small people they know those who are
sellers with a very very small Capital
may be affected but generally it's
assumed that the option sellers are not
you know uh so small people usually
option sellers are big people say for
example for those who are coming and
attending my workshop I just say you
need to have a minimum capital of 25
lakh
rupees right so there you know only
those few people will be affected what
will happen to them they will turn as an
option
buyers okay so this is from the sellers
perspective now come from the buyers
perspective so earlier also I explained
already if somebody is having only you
know let us say 150 rupees when the lot
SI is 15 he will go and buy an option
priced at 10 Rupees so 15 into 10 150 so
he will spend 150
rupees now the lot size is increased to
30 and so he 30 to 10 Rupees 300 rupees
but he does not have 300 rupees he has
only 150 rupees so what he will do he
will go and buy an option where it is
trading at 5
rupees so instead of buying an option
for 10 Rupees he will go and buy an
option for 5 rupees so the quantity it
will be double because the lot SI
increase so what will happen
actually so let us say instead of buying
an option th000 point away now he will
tend to buy option 2,000 point away so
thereby reducing the probability of
winning even
more so actually you know this change in
the rule is actually bad only for option
buyer this is not bad had for option
seller so this is what I've been
highlighting for so many years no matter
what SE does you know that is going to
be against the option buyer and they
will lose even
more so unless a does something you know
to tackle the option buyer you know the
no matter how many new rules Come that's
not going to be effective so that is
number one so first rule change the
contract size increased to 15 lakh it's
not a very big change for big players of
option sellers very small players of
option sellers you know that may affect
them but they may turn as buyers then
you know the buyers will be at a
disadvantage because they'll be forced
to buy option even far away prices far
away strike prices right so that will
reduce their probability of making a
profit very
much now the second
one uh there is a 2% extra margin money
on expiry day as I told you earlier they
mentally prepared the people already the
CBI committee earlier proposed uh 3%
extra margin money the day before
expiry and 5% extra margin money on the
day of
expiry but now the CB has come
and say only
2% right now it will affect whom there
are many people who trade only intraday
only expiry day I know many of my
friends Monday they trade in uh midcap
expiry Tuesday they trade fin Nifty
expiry Wednesday they Trade Bank Nifty
expiry Thursday they trade uh Nifty
expiry Friday they trade sensex expir
every day they do expiry so now if
you're doing expiry day trade and then
your margin money will go up by
2% now when the margin money go up by 2%
you know uh the people thinking 2% is of
small money that is actually not true
earlier if you have been paying let us
say the contract size is 10 lakh 10% is
a margin money so that means you will be
paying 1 lakh as a margin money now
the extra margin will be 2% of the
contract value that means it'll be about
20,000 right so earlier if you're paying
one lakh now you'll be paying 1.2 lakh
rupees so that will potentially reduce
the uh return on
investment for the people who are doing
expir day trade now those exper day
Traders are in a big blow now because as
I told you uh some people every day they
do expiry then then third rule from the
SE says exchanges are allowed to keep
only one weekly expiry per exchange so
which means now from Monday to Friday
they cannot do five different expiries
but however they can do two different
expiries if I'm not wrong okay if my
guess is right uh NC will retain Bank
Nifty for weekly
expiry they will not keep Nifty because
when they started the weekly expiry they
started with bank Nifty even now the
most traded contract in the world is a
bank Nifty so therefore they will not
like to uh retain Nifty they will like
to retain Bank Nifty so there will be
weekly exper on Wednesday that is for
NC but
BC as a competition they will like to
keep
bankex which is on Monday so instead of
five day expiry now you have only 2 day
expiry but even for those two day expiry
also these people have to pay 2%
additional margin
money okay so that will be roughly about
20% increase in the margin money all
right so this is the second one 2% extra
margin
money again for buyers they don't pay
any margin money so that's not going to
affect now I'm just giving an example
there is no pressure for buyers so the
status quo is maintained but now the
sellers have to pay more margin money so
and the seller has to pay more margin
money he will expect more return then
only his return on investment will
match or some people may be out so this
will create uh demand Supply
mismatch so therefore I expect option
premium to go slightly higher again that
will be a disadvantage to the option
buyers right see I'm just giving an
example earlier I was paying one lakh
margin money okay I'm ready to sell
option for 1,000 rupees so that I get 1%
return but now margin money is not 1
lakh it's 1.2
lakh then either I sell for 1,000
compromise my return on investment maybe
0
8% or I get out of the market or I
insist I will sell only for 1,200 rupees
premium right so in that case you know
if the premium goes to 1,200 the buyers
have to pay more
premium so once again so this may have a
little impact on option sellers but the
major loss will be only for the option
buyers and this is my guess we have to
wait and see so I think option premiums
will go slightly higher to compensate
this
20% at this point of time I must tell
you when I started selling you know uh
you know how much margin money I used to
pay for trading one lot of nifty uh I
still remember it's 3,000 rupees all
right so 3,000 rupees for one lot now
you have to pay not less than one lakh
rupees the third point we have already
discussed there is going to be only one
weekly expiry per exchange and also we
have discussed uh the NSC is likely to
keep Bank bank Nifty and then uh BSC is
likely to keep Bank
X
now this is actually good actually I can
tell
you this may be bad for the people who
are doing who have the habit of doing
everyday
expiry right their margin money
increases then in of five different
expiries they have only two different
expir
but people like me we don't do
intraday right so we always do
positional trade now what happens in my
case okay I just take a view and like
I'm just thinking I'm just giving an
example uh let us say on Thursday for
the next Wednesday Bank Nifty expiry I
sell a call option and put option I
think you know Market may not go above
this and Market may not go below this I
go and sell call and put let us say on
Friday the market you know uh moves
violently okay so what normally people
do they sell call option they sell put
option let us say Market goes higher
they will bring the put on the higher
side okay they will roll up the PS or
roll down the calls if the market goes
but generally I do not uh invest all my
Capital I will have a lot of extra
Capital available so when I sell both
call and P the next day Market move
violently you know uh I either I sell
additional puts or additional calls okay
to control the Delta so that additional
one I prefer to do in bankx because you
know that will expire very fast time
value will go
so my workshop participants know this
what we call it as a reference rate so
the base trade I take in Bank Nifty
reference trate I trade in bankx
okay so that will not be getting
Disturbed so positional Traders nothing
to worry the only thing is even the
positional Trader on the day of expiry
he has to allocate 2% extra margin money
so other than that so this is not uh
going to affect the positional Traders
but intraday option sellers will be in
trouble because they have to pay more
margin money they have only two less
trade exper trade
on the other side for option buyers as I
told you uh the premiums May tend to
increase only on expiry day because this
additional margin money we are talking
it's only on expiry day for not for
other days so other days you know it's
okay but actually this step is needed
because you know even the option buyers
also know what they famously call you
know zero or zero you know they always
buy options on an experience every day
you know they buy for 10 Rupees they
expect it to go 100 rupees this and that
you know as per a c study you know if
are taking Bank Nifty for one whole week
you know 65% of the volume happens on
the expiry date right so this is the
kind of gambling that is happening so
that is actually uh not good for option
buyers so we have discussed contract
size increase we have discussed 2% extra
margin money for expiry day we have also
discussed only one weekly expiry per
week so in all three cases I will tell
you uniformly option buyers will be at
disadvantage okay some option sellers
especially intraday sellers will be at a
disadvantage other than that there is
nothing going to be very big change in
the market
dynamics now all these three new rules
coming with effect from November
20 and especially many of my workshop
participants will be having position in
December okay
now uh I'm just giving an example okay
now let us say you sold two lots of call
option two lots of call option will be
50 quantity November 20 exchanges may
change the lot
size let us say the lot size changes to
75 so that means after that you cannot
trade the 50 quantity are holding you
want to square it off also you cannot
Square it off that will be treated
something like what they call it as odd
lot so before November 20 you have to
look at your portfolio so you have to
make sure that whatever things you have
is a multiple of the contract SI your
contract size may be uh 75 or contract
SI may be 60
right if the contract size becomes 75
then it's okay you just do one more a
lot and then make it three the contract
size BEC 60 that's going to be difficult
you have a 50 the contract size is 60
you cannot do anything so unless you
have to uh scale it up you know like you
have to see for 50 and 60 you have to
take the LCM so that's a 300 so like you
have to sell additional 250 quantity so
that you will have a 300 quantity uh so
means right now 300 quantity maybe 12
Lots after the Lots change to 60 it will
become five Lots so if you end up with
Odd Lot you cannot buy or sell so that
has to go for natural expir so that is
what you have to be very
careful now there are three more uh
changes one is upfront collection of
option premium from the buyers that's
from February 1
2025 uh that's not a big change because
you know no broker will allow you to buy
the option if you don't have the cash in
your
account however you know exchange does
not insist uh collection of uppr Premium
from the buyers okay they block it from
the uh broker coll letter so therefore
either broker they themselves buy the
option or their close friends they give
permission for them to buy options uh
that may be going on but that will be
stopped so otherwise for a common man
like you and me there's no
change then the next one intraday
position limits monitoring from April 1
2025 I really don't understand what is
what is the meaning of this as an
exchange they have to keep monitoring
everything right at least if it is a
stock you know when 95% of the position
limit is crossed so they have to stop
the trading okay but there is no such
thing in index so maybe you know they're
just giving a caution you know so they
have to monitor so they monitor or not
who bothers so that's also going to be
no
change then the next one is a calendar
spread
benefit and there are so many strategies
in stock market so calendar spread is
one strategy but generally uh you know
Common People they don't do uh calendar
sprs okay uh no whenever I go to the
workshop I meet the people ask them how
many of you do calendar spread it is
less than 1% of the people who do the
calendar spread and then that calendar
spread benefit will be given so that
benefit will not be given only when one
leg is expiring on that particular day
so therefore that is also not going to
so all these three things you know which
is effective from uh
2025 there are very minor changes so the
major changes are contract SI increased
to 15 lakhs and 2% extra margin money
and only one weekly expiry okay so uh
basically know I can put it this way
professional option sellers are not
affected and there's a too much of a
gambling mentality you know everyday
exper everyday trade you know
so I would say they're also gamblers and
then plus option buyers my argument is
always that are Camas and so therefore
you know so this new SE rules might be
affecting a little bit for the gamers
but there is no um change or there may
be a very very marginal change for a
professional option wrers so that is my
view so let us see what is going to
happen in the next few months and it's
going to be interesting to see the
changes hope you enjoyed watching this
video thank you for watching
Voir Plus de Vidéos Connexes
SEBI closes Weekly Options. New changes from Nov 20th
📝 SEBI Discussion Paper on Derivatives Trading!
SEBI NEW F&O Rule " Pre Market Report Nifty & Bank Nifty 03 October 2024, Range, Prediction
Big changes for the real estate industry coming in August
Pre Market Report 29-Aug-2024
EconMovies #4: Indiana Jones (Reupload)
5.0 / 5 (0 votes)