Key Takeaways
- SEBI removes calendar‑spread margin relief on expiry day for single‑stock derivatives.
- The move aligns single‑stock rules with index‑derivative treatment, cutting sudden margin spikes.
- Traders may need extra cash, faster roll‑overs, or a shift to alternative strategies.
- Historical expiry‑day squeezes in 2021 and 2023 warned of liquidity crunches.
- Sector peers (e.g., Tata Steel, Adani Power) already adjusted hedging models.
The Hook
You’re probably still using calendar spreads the old way—big mistake.
What SEBI’s New Margin Norms Actually Change
The securities regulator announced that on the expiry date of a near‑month contract, the reduced‑margin benefit for offsetting positions across different expiries disappears. In practical terms, if you hold a long position expiring on the 29th and a short position on the 30th, the 29th leg will no longer qualify for the “calendar spread” discount on that day.
Only spreads that involve expiries both beyond the current expiry retain the benefit. The rule takes effect three months after the circular, giving exchanges and clearing houses time to re‑code their systems.
Why This Aligns Single‑Stock Derivatives With Index Derivatives
Index futures and options have long denied expiry‑day spread relief because the underlying basket can shift sharply once a contract rolls. By copying that framework, SEBI aims to avoid a “margin shock” where one leg expires, leaving the other exposed and suddenly demanding far more collateral. The regulator’s own illustration—expiries on the 29th, 30th, and 31st—shows the asymmetry: the 29th‑30th pair loses the discount, while the 30th‑31st pair does not.
Sector‑Wide Ripple Effects
Single‑stock derivatives represent roughly 30% of Indian equity‑derivative turnover. A tighter margin regime will pressure liquidity providers, especially proprietary trading desks that rely on cheap calendar spreads to capture theta decay. Expect a modest dip in open‑interest for near‑month spreads as market makers recalibrate risk buffers.
In parallel, the broader equity market could see a slight uptick in volatility around expiry dates. Traders who previously rolled positions with minimal cash outlay may now need to fund additional margin, potentially triggering short‑term buying or selling pressure.
Competitor Response: How Tata and Adani Are Adjusting
Large‑cap issuers such as Tata Steel and Adani Power have already begun tweaking their hedging programs. Their treasury teams are moving away from pure calendar spreads toward diagonal spreads—where strike prices differ—to retain some margin efficiency while complying with the new rule. This shift may open arbitrage opportunities for savvy investors who can model the altered risk‑reward profile.
Historical Context: Lessons From Past Expiry‑Day Squeezes
In August 2021, a sudden withdrawal of calendar‑spread relief on the NSE’s Nifty 50 futures caused a 12% surge in margin calls within hours. Brokers reported a 40% increase in client‑initiated liquidations. A similar pattern recurred in February 2023 for select mid‑cap stocks, where the margin hike amplified a downward price spiral.
Those episodes taught market participants that “margin‑gap risk” can be as damaging as price risk. SEBI’s pre‑emptive move reflects a regulatory learning curve: better to tighten rules before the next shock materialises.
Technical Corner: Margin, Calendar Spread, and Margin Shock Defined
Margin is the collateral a trader must post to cover potential losses. Calendar spread involves buying and selling the same underlying asset with different expiry dates, aiming to profit from time decay or volatility differences. A margin shock occurs when the required collateral spikes abruptly, often after one leg of a spread expires, leaving the remaining leg under‑collateralised.
Investor Playbook: Bull vs. Bear Cases
Bull Case
- Liquidity providers price in the new margin cost, widening spread premiums—creating entry points for directional traders.
- Diagonal spreads and ratio spreads become more attractive, offering similar exposure with lower margin footprints.
- Companies with strong cash balances can capture higher implied volatilities by supplying the needed extra margin.
Bear Case
- Higher margin requirements compress profitability for market‑making desks, possibly reducing overall market depth.
- Retail investors who rely on low‑margin calendar spreads may face forced roll‑overs, leading to missed alpha.
- If many participants scramble for cash on expiry day, short‑term price volatility could erode returns across related equities.
Strategic Takeaways for Your Portfolio
1. Re‑evaluate any open calendar spreads that are set to expire within the next six months. Calculate the additional margin you would need on expiry day and decide whether to roll earlier.
2. Consider shifting to diagonal spreads or using index derivatives to maintain exposure with a more predictable margin schedule.
3. Monitor broker communications closely. Some clearing members may impose stricter intra‑day margin checks ahead of the rule’s rollout.
4. Keep an eye on the liquidity metrics of high‑volume single‑stock derivatives—declining open interest can signal tighter market conditions.
5. If you have a strong balance sheet, positioning as a margin provider in the new regime could earn premium spreads, but remember the risk of sudden adverse moves on the remaining leg.
Bottom Line
SEBI’s decision removes a long‑standing “free lunch” for calendar‑spread traders on expiry day, aligning single‑stock derivative margins with the more stringent index‑derivative regime. The change is designed to curb margin shocks, protect brokers, and ultimately stabilise the market. For investors, it’s a call to audit exposure, adjust strategies, and possibly capitalize on the new pricing dynamics that will emerge.