Consultation paper seeks to introduce measures to enhance investor protection and promote market stability in derivative markets while ensuring sustained capital formation.
About Index derivatives
- Derivatives are financial contracts that draw their value from an underlying asset (commodity, security, currency, or index).
- Futures and Options (F&O) are common types of derivatives (refer to the box).
Need for Strengthening Index Derivatives Framework
- Excessive speculative trading: ₹50,000–₹60,000 crore of household savings lost through derivatives trading.
- Increased retail participation in equity derivatives: Index options rose from 2% of individual trades in FY 2018 to 41% in FY 2024.
Key Changes Proposed
- Increase in Minimum Contract Value from current current size is ₹5 lakh to ₹10 lakh to ₹15 lakh to ₹20 lakh which could increase to up to ₹30 lakh after six months.
- Limiting Strike Prices to 50 strikes for an index derivatives contract at launch to prevent scattering of trading activity and liquidity.
- The strike price is the pre-determined price at which the buyer and seller of an option agree on a contract or exercise a valid and unexpired option.
- Members to collect option premiums upfront from clients.
About F&O
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