The Securities and Exchange Board of India, SEBI, has introduced an important risk management change in the derivatives market. Through a circular dated February 5, 2026, the regulator has withdrawn the calendar spread margin benefit on the expiry day for single stock derivative contracts that expire on that day.
While calendar spreads remain permitted, the margin relief associated with them will no longer apply on the expiry day of the near-month contract. This change aligns single stock derivatives with the existing framework for index derivatives and aims to reduce margin and settlement-related risks.
Understanding Calendar Spread Margins
A calendar spread refers to holding derivative positions in the same underlying stock but with different expiry dates. Because the price movement of these positions is usually correlated, exchanges allow lower margins as the overall risk is reduced.
Until now, traders could continue to enjoy this margin benefit even on the expiry day of the near-month single stock contract. SEBI has now clarified that this approach poses specific risks on expiry and needs correction.
What SEBI Has Changed
SEBI has decided that the benefit of offsetting positions across different expiries will not be available on the day of expiry for single stock derivative contracts that expire on that day. In simple terms:
- If one leg of your calendar spread expires today, the margin benefit will not apply for that spread on the expiry day.
- Full applicable margins will be required for the expiring contract on that day.
This restriction applies only on the expiry day of the contract and only to spreads that include the expiring leg.
What Remains Unchanged
SEBI has clearly stated that margin calculations for calendar spread positions remain unchanged in all other cases.
Calendar spreads involving contracts that expire in future months will continue to receive the existing margin benefit, even if the current month contract is expiring on the same day. This ensures that longer-dated strategies are not disrupted unnecessarily.
SEBI’s Illustration Explained Clearly
SEBI has provided an example using three monthly expiries:
- Current month expiry on the 29th
- Next month expiry on the 30th
- Far month expiry on the 31st
On the 29th, which is the current month expiry day:
- A spread between the 29th and 30th expiry will not receive calendar spread margin benefit.
- A spread between the 29th and 31st expiry will also not receive the benefit.
- A spread between the 30th and 31st expiry will continue to receive calendar spread margin benefit.
This example highlights that the restriction applies only when the expiring contract is part of the spread on its expiry day.
Why SEBI Introduced This Rule
The change follows representations from trading members and discussions with SEBI’s Secondary Market Advisory Committee. The regulator identified a structural risk linked to providing calendar spread benefits on expiry day.
When one leg of a calendar spread expires, the remaining open position can suddenly carry higher risk. This often leads to a sharp increase in margin requirements on the following day, leaving trading members with limited time and limited options if prices move adversely.
By removing the margin benefit on the expiry day itself, SEBI is giving clients and brokers advance visibility of margin requirements. This allows them to bring in additional margin, roll over positions, or close spreads in a controlled manner.
Impact on Traders
For traders, this change means expiry day margin requirements for certain calendar spreads will be higher than before. Strategies that relied on reduced margins until the last trading day will need better planning.
Traders will now need to actively monitor calendar spread positions involving near-month expiries and ensure sufficient margin is available on expiry day.
Impact on Brokers and Clearing Members
For brokers and clearing members, the revised framework reduces the risk of sudden margin shortfalls after expiry. It improves predictability and strengthens intraday risk management.
The alignment with index derivative rules also simplifies compliance and operational consistency across derivative segments.
Effective Date and Transition Period
The circular will come into effect three months from the date of issuance. Since it was issued on February 5, 2026, the new margin treatment is expected to be implemented in early May 2026.
This transition period gives exchanges, clearing corporations, brokers, and clients adequate time to update systems, risk models, and trading practices.
Responsibilities of Stock Exchanges and Clearing Corporations
SEBI has directed all stock exchanges and clearing corporations, except those dealing with commodity derivatives, to implement the new framework. This includes:
- Updating margin systems
- Amending bye laws, rules, and regulations where necessary
- Ensuring smooth and uniform implementation across the market
Legal Basis of the Circular
The circular has been issued under Section 11(1) read with Section 11(2)(a) of the SEBI Act, 1992. The objective is to protect investor interests and promote the orderly development and regulation of the securities market.
Conclusion
SEBI’s decision to withdraw calendar spread margin benefits on expiry day for single stock derivatives is a cautious and risk‑averse regulatory move that prioritizes systemic stability over trading efficiency. While the rationale of preventing sudden post‑expiry margin shocks is valid, the measure does reduce capital efficiency for traders who actively manage spreads until expiry. The rule effectively shifts margin pressure earlier, forcing participants to arrange additional funds or unwind positions before expiry rather than reacting after one leg lapses. This favors brokers and clearing corporations by improving predictability and reducing default risk, but it places a higher operational and funding burden on traders, particularly those with limited capital flexibility. Overall, the update reflects SEBI’s continued preference for pre‑emptive risk control, even at the cost of reduced short‑term trading flexibility.
Source: SEBI Circular dated 05/02/2026 on Review of Calendar Spread margin benefit in Single stock derivatives on expiry day