SEBI Reviews Margin Framework for Longer-Term Derivatives to Boost Hedging and Curb Expiry Speculation — September 23, 2026

The Securities and Exchange Board of India (SEBI) is undertaking a broad review of the equity derivatives margin framework, aiming to incentivize longer-tenured hedging instruments while continuing to curb speculative excess around contract expiries.

SEBI Chairman Tuhin Kanta Pandey has emphasized that developing longer-term futures and options contracts forms a vital part of deepening India's capital markets. The regulator's strategic focus is pivoting toward building out the longer end of the derivatives curve for institutional and strategic hedgers, moving away from hyper-short-term contracts that have dominated Indian bourses.

Shift Toward Long-Dated Contracts

Under the existing framework, index derivative contracts with a residual maturity exceeding nine months are classified as long-dated derivatives, attracting a separate and more capital-intensive margin structure. Market participants have long argued that this structure locks up excessive capital and dampens liquidity beyond near-month contracts.

To address these frictions, SEBI is actively evaluating proposals to extend the standard margin framework to index derivatives with residual maturities of up to 13 months. This change would permit investors and portfolio managers to hold hedging positions for up to a full year without being subjected to punitive long-dated margin requirements, lowering the overall cost of carry for long-term hedging strategies.

Key Proposals Under Consideration

The regulatory review incorporates several targeted structural adjustments across derivatives margining:

• Expanding Standard Margins: Raising the threshold for standard index derivative margining from nine months to 13 months to facilitate institutional hedging.
• Rationalizing Calendar Spreads: Evaluating a tiered calendar spread charge for index options—replacing flat levies with graded charges ranging between 1.25% and 3.5% based on maturity differences—to free up locked capital in hedged spread trades.
• Upgrading the SPAN Model: Expanding risk scenarios within the Standard Portfolio Analysis of Risk (SPAN) framework beyond the current 16 price and volatility scenarios to capture portfolio risks more accurately.
• Retaining Expiry-Day Guardrails: Maintaining higher margins and strict risk measures on expiry days to discourage short-term retail speculation.
• Safeguards on Reversal Trades: Introducing an additional Extreme Loss Margin (ELM) of 3% on large conversion and reversal trades exceeding specified transaction thresholds.

Protecting Retail Capital and Deepening the Market

The regulatory review comes in the wake of regulatory concerns over the scale of retail speculative losses in the futures and options (F&O) segment. SEBI studies revealed that despite regulatory interventions narrowing individual net losses from ₹1.12 lakh crore in FY25 to ₹91,685 crore in FY26, roughly 88% of individual traders continued to lose money. Moreover, trading volumes had historically become disproportionately concentrated in ultra-short-term, single-day expiry products.

By realigning margins to favor risk-defined strategies and longer maturities, the regulator seeks to reorient derivatives toward their fundamental economic purpose: risk transfer and balance sheet hedging. For domestic institutional investors, mutual funds, and individual investors utilizing disciplined spread structures, the planned overhaul promises greater capital efficiency without diluting systemic stability.

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