is considering a proposal that could increase margin requirements for single-stock derivatives by 30-60 per cent on expiry days, as the regulator looks to align stock-derivative rules with index contracts, according to people familiar with the matter.
The potential rise mirrors the margin offsets traders typically receive for calendar spreads. Clearing data shows that these offsets often reduce effective margins by one-third to over half for many stock-futures spreads.
Removing the benefit on the day the contract expires would therefore require traders to post substantially more capital during market hours, instead of carrying the lower margin until the 3:30 pm close.
A SEBI source said the aim is to “align the calendar spread treatment for single stocks derivatives with that for index derivatives and cross margin framework for index derivatives,” The regulator removed the expiry-day benefit for index derivatives from February 1, but the rule was never extended to stock futures and options. SEBI is expected to issue a draft circular seeking public comments soon.
Tighter liquidity
Market participants say this could tighten expiry-day liquidity. Traders who run leveraged spread positions may need to unwind earlier in the session if they cannot bring in additional margin, leading to thinner order books, wider spreads and more abrupt position closures near the close.
Under the current system, traders can hold both legs of a spread throughout the session with lower margins, even though one leg will expire after closing. When that leg lapses post-market, the margin requirement “increases substantially due to expiry of one leg, leaving the other leg open,” an industry source said. The resulting jump occurs only after the session ends.
This creates a risk window for brokers. “Trading members do not have recourse to square-off the client’s position for margin shortfall as the market is already closed for the day,” the source said. The remaining position remains open with thin margin which creates risk for the broker due to any overnight price movements.
By withdrawing the spread benefit on expiry day itself, clearing corporations would need to collect higher margins intraday. This would reduce overnight exposure for brokers but increase the need for real-time margin calls. Some fear reduced participation from smaller or cash-constrained traders, who often rely on spread offsets to keep capital requirements manageable.
SEBI did not respond to an email seeking comments.