Consultation paper seeks to introduce measures to enhance investor protection and promote market stability in derivative markets while ensuring sustained capital formation.

About Index derivatives 

• Derivatives are financial contracts that draw their value from an underlying asset (commodity, security, currency, or index).
• Futures and Options (F&O) are common types of derivatives (refer to the box). 

Need for Strengthening Index Derivatives Framework

• Excessive speculative trading: ₹50,000–₹60,000 crore of household savings lost through derivatives trading.
• Increased retail participation in equity derivatives: Index options rose from 2% of individual trades in FY 2018 to 41% in FY 2024.

Key Changes Proposed

• Increase in Minimum Contract Value from current current size is ₹5 lakh to ₹10 lakh to ₹15 lakh to ₹20 lakh which could increase to up to ₹30 lakh after six months. 
• Limiting Strike Prices to 50 strikes for an index derivatives contract at launch to prevent scattering of trading activity and liquidity.
  • The strike price is the pre-determined price at which the buyer and seller of an option agree on a contract or exercise a valid and unexpired option.
• Members to collect option premiums upfront from clients.