Description

SEBI removes calendar spread margin benefit on expiry day for single stock derivatives to align with index derivatives treatment and mitigate risks from sudden margin increases.

Summary

SEBI has modified the calendar spread margin treatment for single stock derivatives effective three months from February 5, 2026. The benefit of offsetting positions across different expiries will no longer be available on expiry day for contracts expiring on that day. This aligns single stock derivatives treatment with existing index derivatives rules and addresses risks of sudden margin increases following expiry of one leg of calendar spread positions.

Key Points

  • Calendar spread margin benefit removed on expiry day for single stock derivative contracts expiring on that day
  • Change aligns single stock derivatives with existing index derivatives treatment
  • Calendar spread positions involving non-expiring contracts continue to receive spread treatment
  • If current month expires on 29th, spreads between 29th and later months lose benefit on 29th, but spreads between later months retain benefit
  • Provides time for clients and trading members to arrange additional margin or roll over/close positions
  • Mitigates risk of sudden margin increase on day following expiry with limited recourse options

Regulatory Changes

Amendment to Chapter 5 of SEBI Master Circular dated December 30, 2024 for Stock Exchanges and Clearing Corporations regarding calendar spread margin treatment (Clause 1.2.6 and 1.2.7). The existing provision that removed calendar spread benefit on expiry day for index derivatives is now extended to single stock derivatives.

Existing margin calculations remain unchanged for:

  • Calendar spread positions involving expiries that are not expiring on the given day
  • All other non-expiry day scenarios

Compliance Requirements

Stock Exchanges and Clearing Corporations must:

  • Implement systems to enforce new calendar spread margin rules
  • Make necessary amendments to bye-laws, rules and regulations
  • Complete implementation within three months from circular date

Trading Members and Clients must:

  • Adjust trading and margin management strategies for single stock calendar spreads
  • Ensure adequate margin funding on expiry days for positions involving expiring contracts
  • Consider rolling over or closing calendar spread positions before expiry day to avoid increased margin requirements

Important Dates

  • Circular Date: February 5, 2026
  • Effective Date: May 5, 2026 (three months from circular date)
  • Implementation Deadline: Stock exchanges and clearing corporations must complete system changes by May 5, 2026

Impact Assessment

Market Impact:

  • Increased margin requirements on expiry days for traders holding calendar spreads in single stock derivatives
  • May reduce calendar spread positions involving expiring contracts or prompt earlier position closure/rollover
  • Levels the playing field between index and single stock derivatives margin treatment

Operational Impact:

  • Trading members need to enhance margin monitoring systems for expiry day scenarios
  • Clients may need to arrange additional margin funding or modify position management strategies
  • Risk management systems at exchanges and clearing corporations require updates

Risk Mitigation:

  • Addresses sudden margin increase risk on day following expiry when one leg expires
  • Provides advance notice (on expiry day itself) rather than next-day surprise
  • Gives sufficient time to arrange additional margin or close/roll positions during trading hours
  • Aligns risk management approach across derivative product categories

Impact Justification

Significant change in margin calculation methodology for single stock derivatives affecting all market participants with calendar spread positions. Requires system changes and may impact trading strategies and margin funding requirements on expiry days.