The Securities and Exchange Board of India (Sebi) on Tuesday proposed to tighten rules on derivatives trading as it sought to curb speculation.

In a consultation paper, Sebi suggested increasing the minimum value of a derivatives contract in a phased manner, collection of option premiums on a upfront basis, rationalisation of weekly index products and intra-day monitoring of position limits.

Sebi said the equity derivatives market is witnessing increased retail participation, more short tenure index options contracts and heightened speculative trading volumes in index derivatives on expiry date. It now seeks to introduce measures to enhance investor protection and promote market stability.

The regulator wants the minimum size for index derivative contracts be revised in two phases.

In Phase 1, the minimum value of the derivatives contract at the time of introduction should be ₹15-20 lakh.

In Phase II, after six months, the minimum value should be the interval of ₹20-30 lakh.
The minimum contract size now is ₹5-10 lakh which was last set in 2015.

The second major recommendation related to upfront collection of options premium from clients. At present, there is no explicit stipulation of upfront collection of options premium. Sebi also suggested intra-day monitoring of position limits.

Currently, while limits for various participants and product types are specified, they are monitored by MIIs (Clearing Corporations/Stock Exchanges) at the end of the day.

According to the market regulator particularly on the day of expiry, there is a possibility of undetected intraday positions beyond permissible limits even as end of day open positions would be nil.

``Given the evolving market structure, the position limits for index derivative contracts shall also be monitored by the clearing corporations/ stock exchanges on intra-day basis,’’ it added.

The regulator wants to rationalise weekly expiry and restrict it to one per week on the benchmark index per exchange. It wants options contract only on a single benchmark index of an exchange.

For instance currently, the NSE has weekly contracts on Nifty, Bank Nifty, Nifty Financial Services and Nifty Midcap. The discussion paper’s suggestion will mean that the bourse will have to offer contracts only on a single index.

“This change will likely impact volumes, as the recent volumes in the equity derivatives segment have been driven by weekly expiries,” said Dhiraj Relli, MD & CEO, HDFC Securities.