Sebi withdraws expiry-day margin benefit for single-stock derivatives

The Securities and Exchange Board of India (SEBI), as part of its ongoing efforts to enhance market stability and promote a reduction in the risks associated with the derivatives segment, has announced the withdrawal of the expiry-day margin benefit for single stock derivatives. Such an SEBI margin rule change will impact the stock derivatives trading strategies of traders, particularly on expiry days, as SEBI now equally treats single stock futures and options as single stock index derivatives. 

Retail and institutional investors will have to understand the changing SEBI F&O rules to avoid the imposition of additional unexpected margin requirements from SEBI.

The Indian stock market has seen record growth in participation in futures and options (F&O) trading. The increase in trading volumes for single-stock derivatives has led SEBI to tighten its margin requirements to address systemic risk. 

This blog covers details about expiry-day margin benefit withdrawals, the margin requirements, SEBI guidelines, and actionable insights for traders. This guide will prepare and inform you whether you are an advanced options trader or new to stock derivatives trading.

 

 

What Is The Expiry-Day Margin Benefit, And Why Was It Introduced?

In order to understand the implications of the latest directive from SEBI, it is important to understand the expiry-day margin benefit. In stock derivatives trading, a calendar spread refers to the simultaneous purchase of an option with one expiry date and the sale of an option with a later expiry date on the same underlying asset. For example, a trader may purchase a call option with a current month expiration and sell a call option with a next month expiration. This strategy is popular because it is one way to take advantage of time decay and other factors between the two contracts.

With the previous SEBI F&O regulations, traders received a margin advantage on these calendar spreads, meaning they did not have to post the full margin for both sides of the trade. Instead, SEBI imposed a margin requirement for offsets, as it recognised that the positions somewhat hedged each other. On expiry day, this even applied to positions where one leg expired that day.

This margin benefit was meant to promote single stock derivative market liquidity. It allowed traders to manage or roll over contracts incrementally, without the cost of managing margins. But as market volumes increased, SEBI felt that there were some systemic risks in the potential for the exaggerated margins to be called after one leg expired, creating operational problems for brokers, and increasing market volatility.

Calendar spreads are fundamental stock derivative trading strategy components. They are necessary to manage risks associated with short and long positions in different time horizons. Now that this benefit has been withdrawn, traders will have to modify their strategies, especially for high-volume expiry days.

SEBI’s Latest Circular on the Withdrawal of Expiry-Day Margin Benefits

SEBI (the Securities and Exchange Board of India) has stated in a circular dated February 5, 2026, that the calendar spread margin benefit about single stock derivative contracts will not apply to the expiry day of these contracts. This margin SEBI rule becomes applicable in three months, allowing participants to modify their systems and strategies. This brings single-stock derivatives in sync with index derivatives, where in a similar restriction was imposed last year.

Here is an example for clarification. Let’s presume there is a stock that has monthly expiries on the 29th (current month), 30th (next month), and 31st (far month). On the 29th, which is the expiry day of the current contract, any calendar spread that includes the 29th expiry along with the 30th or 31st will not qualify for a margin offset. This means that traders will be required to pay a full margin for these positions and, consequently, will be required to increase their capital for these positions by 30% to 60% for leveraged positions.

This change under SEBI F&O rules means that after a contract expires at the end of the day, the other leg will not suddenly need new margins, which could surprise brokers and traders. There will be easier access to the new margins on the exchanges, which will be transparent and help avoid disputes.

The instruction states that the margins will continue to benefit from a spread of the non-expiring contracts, but on the expiry day, an expiring contract will be included in the offset. This will help to retain calendar spread functionality and help to resolve some of the risks linked to the expiry day in some single-stock derivatives.

Why SEBI Is Tightening Margin Norms

The lack of application of the expiry day margin benefit is a function of risk controls and therefore, is justified. The increase in retail investors participating in stock derivatives trading in the last few years has raised concerns for market stability. Expiry days continue to be hyper volatile with big swings in the market when contracts need to be closed or rolled.

One primary concern is friction due to what could be termed "margin shocks". While a calendar spread is still in play, the offset advantage of a position is retained, whereby the contract that is set to expire does not retain any offset. This means once that contract expires, the terminal / remaining position is standalone/naked, and thus requires full margin. This adjustment that happens post-market could create deficits. As a result, a broker could be forced to cull positions or set sanctions that could affect the viability of the market.

Given that SEBI removes this margin offset advantage on the "expiry day" of the contract, it would prevent this from occurring, as a margin would have to be collected in advance during the period of the spread. It also diminishes operational risks that clearing corporations and brokers have to absorb. It is also in congruence with the other margin-related regulatory changes promoted by SEBI, such as the changes to index derivatives to promote a better functioning ecosystem for the F&O.

Responses to trading members, and the SEBI Secondary Market Advisory Committee (SMAC) deliberations, raised such concerns, and in a sense, that is the situation with the SEBI primary focus; under regulatory reforms, stock derivatives trading innovation, is, paradoxically, from an operational perspective, means restricting the potential for excessive speculation.

 

 

Changes to Stock Derivatives Trading & Traders

The expiry-day margin is a benefit being removed that will impact stock derivatives trading. It will initially begin making singular stock derivatives trading more expensive. With increased margin requirements set by SEBI, those traders who use calendar spread options for hedging and arbitrage will experience a reduction in both their leverage and position sizes.

A large portion of the F&O volume is comprised of retail traders, and participation for these traders on expiry days will be more difficult. Certain strategies’ margins will be increasing by over 60%, and thus the smaller traders will likely revert to rather conservative trading strategies and move towards index derivatives.

On the contrary, institutional investors and high-frequency traders will have less trouble making the adjustments by reconfiguring their algorithms to accommodate the full margins being taken. Nonetheless, this may result in some participants reducing their activity, and thus less liquidity on expiry days. For brokers, less risk will be taken overall, but client education will be necessary for the F&O SEBI rules to prevent misunderstandings.

In the larger context of the market, the margin rule may help reduce speculative excesses, leading to more efficient and price-stable discovery in single stock derivatives. While volumes may be impacted in the short run, the long-term sustainability of the derivatives market will be enhanced by healthy risk mitigation.

Take the example of a trader holding a calendar spread in Reliance Industries futures and whose near-month expires today. He used to enjoy a margin reduction of 40-50 percent. He will now, under the new regime, allocate full capital, which will trap some of his money that could have been used elsewhere in stock derivatives trading.

Larger Context of SEBI F&O Rules and Margin Requirements

Changes regarding the F&O segment are happening in SEBI’s F&O Rules and Margin Requirements are also changing in the F&O segment of SEBI. In the past few years, SEBI has implemented new measures such as higher transaction costs, lower contract sizes for indices, and higher minimum eligibility for certain stocks in the derivatives market.

Last year, for example, SEBI’s margin restrictions for index derivatives were tightened for the first time, setting a precedent for single-stock derivatives. Other measures include the first-time introduction of True to Label (TTL) margins, as well as greater high-risk margin trading disclosures.

These changes are to protect F&O traders, and especially retail traders, from the dangers of excessive leverage in F&O trading. It’s well known that most F&O traders lose money. In light of this, and from the data, SEBI has begun to place restrictions in order to encourage participation that has a lower level of risk. It can also be seen that the removal of the expiry-day margin benefit is targeted at retail F&O traders, and specifically those who are trading single-stock derivatives.

These changes are intended to align India’s practices with global derivatives markets, particularly given the size of India’s F&O markets.

How Traders Can Adjust to New Margin Rules by SEBI

Prior planning is necessary to accommodate SEBI's new rule which removes day-of-expiry margin benefits. Assess your stock derivatives trading strategy and focus on spreads that do not expire on the same day. Using the margin calculators that exchanges offer can help you estimate the new margins you will be subjected to due to SEBI.

Costs can be optimised by spreading into non-expiry and by diversifying other hedging options like ETFs or index options. Education is invaluable; webinars and advice from certified professionals to understand your F&O SEBI rules is the best investment you can make.

Brokers are vital as well, especially when they provide instant margin notifications and modular funding. In the end, this change promotes more thoughtful trading than before, as it will require traders to incorporate more sophisticated means to manage and contain risks.

Neophytes of single-stock derivatives are advised to engage in paper trading platforms as a means of gaining comfort without being exposed to real capital. Keep in mind that this modification will increase your costs but will also decrease the risks and costs associated with unforeseen events after expiry.

 

 

Conclusion: Adjusting to New Changes Under SEBI Rules

In terms of operational risk and volatility, Indian markets are strengthened with SEBI withdrawing expiry-day margin benefits for single-stock derivatives. With SEBI adjusting margin rules to align with index derivatives, a more balanced and protective measure is on the way for stock derivatives.

In terms of the challenges at the outset, the loss of expiry-day margins on equity derivatives, higher margins from SEBI, and the necessity to adjust one’s trading strategy may be concerning. However, the long-term benefits, decreased margin “surprises”, and improved integrity of the markets are, in fact, the true value of the change. 

This adjustment will be critical for success in the new marketplace for SEBI’s F&O rules. With a focus on SEBI as the dominant F&O rules, applicable beginning in May 2026, now is an optimal time to focus on new sustainable trading opportunities. There will be new updates on the SEBI margin requirements, and with them, new opportunities for responsible trading.

DISCLAIMER: This blog is NOT any buy or sell recommendation. No investment or trading advice is given. The content is purely for educational and information purposes only. Always consult your eligible financial advisor for investment-related decisions.