NEW SEBI RULES: The Good, Bad & Ugly!

Summary

In 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

00:00

📊 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.

05:02

📉 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.

10:06

📈 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.

15:08

💼 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.

20:11

📅 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.

Keywords

💡SEBI Rules

SEBI (Securities and Exchange Board of India) Rules refer to the regulatory guidelines set by SEBI, India's securities regulator. In the video, new SEBI rules are discussed, particularly those affecting the financial market, such as changes in contract sizes and margin requirements.

💡Contract Size

Contract size refers to the minimum value of a derivative contract that can be traded. The video discusses how SEBI has increased the minimum contract size from 5 lakhs to 15 lakhs, which impacts trading strategies and the number of lots traders can buy or sell.

💡Lot Size

Lot size is the number of units of a particular security that can be traded in a single transaction. The video explains how the increase in contract size may lead to an increase in lot size, affecting small traders who may not be able to afford the new minimum requirements.

💡Option Seller

An option seller is a trader who sells options contracts, effectively granting the buyer the right, but not the obligation, to buy or sell an underlying asset at a specified price before a certain date. The video discusses how the new rules may affect option sellers, particularly those with small capital.

💡Option Buyer

An option buyer is a trader who purchases options contracts, gaining the right to buy or sell an underlying asset at a specified price before a certain date. The video highlights that the new rules may disadvantage option buyers by forcing them to buy options with less probability of winning.

💡Margin Money

Margin money is the initial amount of money deposited by an investor to open a leveraged position in derivatives. The video mentions that SEBI has introduced a 2% extra margin requirement on expiry day, which increases the capital needed for intraday traders.

💡Expiry Day

Expiry day is the last day on which an options or futures contract can be traded before it becomes invalid. The video discusses the impact of the new rules on traders who specialize in expiry day trades, as they will have to manage increased margin requirements.

💡Weekly Expiry

Weekly expiry refers to the scheduled end of a derivatives contract on a specific week. The video explains that exchanges will be allowed to keep only one weekly expiry per exchange, reducing the number of trading opportunities for certain traders.

💡Intraday Trading

Intraday trading is the practice of buying and selling financial instruments within the same trading day. The video suggests that intraday option sellers may be negatively impacted by the new rules due to increased margin requirements and fewer expiry day trades.

💡Positional Trade

Positional trade refers to holding a position in a security for an extended period, typically days or weeks, with the expectation that the price will move in a favorable direction. The video indicates that positional traders may not be significantly affected by the new rules.

💡Odd Lot

An odd lot is a quantity of shares that is not a standard multiple of the contract size. The video warns that traders with odd lots may face difficulties after the new contract size rules come into effect, as they may not be able to trade these lots and will have to let them expire naturally.

💡Calendar Spread

A calendar spread is an options strategy that involves buying and selling options of the same type, strike price, and underlying asset, but with different expiration dates. The video mentions that the new rules will affect the benefits of calendar spreads, but since few people use this strategy, the impact will be minimal.

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