SEBI Tightens Margin Rules For Single-Stock Spreads On Expiry Day

The Securities and Exchange Board of India has tightened margin norms for traders dealing in single-stock derivatives by removing calendar spread margin benefits on the expiry day of contracts maturing on that day.
The decision was communicated through a circular issued on Thursday and will come into effect after a three-month implementation window.

Calendar spread margin benefits allow traders to post lower margins when they hold offsetting positions in the same stock across different expiry dates. SEBI said allowing this benefit on expiry day creates vulnerabilities once the expiring contract lapses.

Why The Regulator Stepped In

Until now, traders continued to enjoy reduced margin requirements even on the expiry day of one leg of a single-stock calendar spread. SEBI said this could lead to abrupt margin shortfalls after expiry, when traders are left with an unhedged open position that may be exposed to sharp price movements.

The regulator said trading members had flagged these risks, and the matter was discussed with SEBI’s Secondary Market Advisory Committee before finalising the change.

How The New Rule Will Work

Under the revised framework, if a calendar spread includes a contract expiring on that trading day, no margin benefit will be available for the session. Traders will have to post full margins for such positions.

Calendar spreads involving only future expiries will continue to receive margin relief as before. For example, a spread between next-month and far-month contracts will still qualify for lower margins, while a spread involving the current-month contract on its expiry day will not.

Impact On Traders And Brokers

SEBI said the change is intended to smoothen margin requirements and prevent last-minute funding pressure. By removing the margin benefit on the expiry day itself, traders and brokers will have time to add margins, roll over positions, or close them before expiry.

Market participants said the move could affect traders who rely on expiry-day margin offsets, particularly those running margin-efficient spread strategies. However, the impact is expected to be more behavioural than systemic.

What Remains Unchanged

SEBI clarified that margin calculations for calendar spreads on non-expiry days remain unchanged. Stock exchanges and clearing corporations have been instructed to update their systems, byelaws, and rules to implement the revised margin framework.

The regulator said the overarching objective is to reduce systemic risk and prevent sudden margin shocks around contract expiry.