SEBI May Revamp Equity Derivatives Margin Framework; Changes to SPAN, ELM Under Consideration: Reports

The Securities and Exchange Board of India (SEBI) is reportedly examining changes to the margin framework for equity derivatives as part of efforts to strengthen risk management and encourage more efficient hedging practices. As per news reports from Moneycontrol, the market regulator is considering a series of proposals that could reshape margin requirements for different trading strategies while discouraging excessive speculative activity, particularly in the retail segment.

The reported review comes at a time when participation in the futures and options (F&O) market has grown rapidly, with a significant share of trading concentrated in short-duration contracts, especially weekly options.

SEBI May Ease Margin Requirements for Defined-Risk Strategies

According to news reports from Moneycontrol, SEBI is evaluating a risk-based approach to margin requirements, under which trading strategies with clearly defined maximum losses could attract lower margin obligations.

The proposals reportedly include changes to key components of the existing margin framework, such as the Standard Portfolio Analysis of Risk (SPAN) model, Extreme Loss Margin (ELM), and the Cross-Margining System (CSC). The objective is to improve capital efficiency for hedging strategies while ensuring that higher-risk positions continue to attract adequate safeguards.

If implemented, the revised framework could make it more cost-effective for market participants to execute hedged positions without compromising overall market stability.

Focus on Promoting Longer-Term F&O Contracts

The regulator is also reportedly exploring measures to encourage trading in longer-tenure derivatives, including one-year index futures and options contracts.

As per news reports, the move is aimed at shifting market activity away from short-term speculative trading towards longer-duration contracts that are more commonly used for institutional hedging and portfolio risk management. Such a shift could help improve market depth while reducing the concentration of trading around weekly contract expiries.

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Conclusion

The proposed changes are currently under discussion, and SEBI has not announced any final decision on the revised margin framework. If the reported proposals are implemented, they could significantly alter the way participants manage capital in the equity derivatives market by rewarding defined-risk strategies and promoting longer-term hedging. Market participants will be watching closely for any formal consultation paper or regulatory announcement from SEBI on the matter.

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