Description

SEBI directive to remove calendar spread margin benefit on expiry day for single stock derivatives, aligning with index derivatives treatment. Effective three months from February 5, 2026.

Summary

SEBI has issued a directive to withdraw calendar spread margin benefits on expiry day for single stock derivatives contracts that expire on that day. This aligns the treatment of single stock derivatives with index derivatives, where such benefits are already not available on expiry day. The change is based on recommendations from SEBI’s Secondary Market Advisory Committee (SMAC) following references from trading members regarding potential risks. Stock exchanges and clearing corporations must implement this within three months from February 5, 2026.

Key Points

  • Calendar spread margin benefit will not be available on expiry day for single stock derivative contracts expiring on that day
  • This aligns single stock derivatives treatment with existing index derivatives rules
  • Calendar spread positions involving non-expiring contracts will continue to receive margin benefits even on expiry days
  • The change addresses risks of sudden margin increases and provides time for clients/members to arrange additional margins or adjust positions
  • NSE Clearing circular reference: NCL/CMPT/72659, Circular No. 018/2025
  • SEBI circular reference: HO/47/15/11(2)2025-MRD-TPD1/I/4226/2026

Regulatory Changes

SEBI Master Circular Chapter 5 (dated December 30, 2024) provisions for calendar spread margin treatment are being modified. The key change removes the offsetting benefit across different expiries on expiry day for single stock derivatives contracts that expire on that day.

Illustration Example: If monthly expiries are on 29th (current month), 30th (next month), and 31st (far month):

  • On 29th expiry day: Calendar spreads involving 29th-30th or 29th-31st positions will NOT receive margin benefit
  • On 29th expiry day: Calendar spreads involving 30th-31st positions will CONTINUE to receive margin benefit
  • Margin calculations for all other calendar spread positions remain unchanged

Compliance Requirements

  • Stock exchanges and clearing corporations must implement necessary system changes
  • Amendments to relevant bye-laws, rules, and regulations may be required
  • Trading members need to:
    • Update risk management systems to account for changed margin calculations on expiry days
    • Inform clients about increased margin requirements on expiry days for calendar spread positions
    • Plan for additional margin collection or position adjustment on expiry days
  • End clients holding calendar spread positions in single stock derivatives must arrange additional margins on expiry day or roll over/close positions

Important Dates

  • Circular Issue Date: February 5, 2026
  • Implementation Deadline: Three months from February 5, 2026 (approximately May 5, 2026)
  • Effective Date: To be notified by exchanges, but no later than May 5, 2026

Impact Assessment

Market Impact:

  • Trading members and clients holding calendar spread positions in single stock derivatives will face higher margin requirements on expiry days
  • May lead to reduced calendar spread positions in single stock derivatives on expiry days
  • Provides uniformity in margin treatment between index and single stock derivatives

Operational Impact:

  • Stock exchanges and clearing corporations need system modifications within three months
  • Trading members must upgrade risk management and margin calculation systems
  • Increased operational burden on expiry days for position management and margin collection

Risk Mitigation:

  • Addresses the risk of sudden margin increases on the day following expiry when one leg of calendar spread expires
  • Provides sufficient advance notice (on expiry day itself) for margin shortfalls rather than next-day surprises
  • Reduces systemic risk from inadequate margining of calendar spread positions on expiry days

Rationale: The change mitigates the risk scenario where calendar spread positions receive margin benefit on expiry day, but on the next day (after one leg expires), the remaining open leg faces full margin requirement. This could cause sudden, large margin calls with limited recourse for members, especially if the open leg shows adverse price movement overnight.

Impact Justification

Significant change to margin calculation methodology for single stock derivatives that affects trading members and clients holding calendar spread positions. Requires system changes and impacts margin requirements on expiry days.