Mumbai, Dec. 15 -- The Securities and Exchange Board of India (SEBI) is likely to rationalise margins on equity derivatives on non-expiry days to encourage big traders to place longer-term bets rather than focus solely on the expiration day, two people aware of the development told Mint. This move could deepen the derivatives markets, where most of the trading by large, high-frequency and proprietary traders as well as individual investors takes place on weekly option contracts' expiry. "The RMRC (SEBI's risk management and review committee) is discussing a rationalisation of margins as the current ones can discourage long-term traders, especially on non expiry days," said one of the persons cited above. The second person said SEBI would seek feedback from market participants on these changes. Mint's email to SEBI did not elicit a response. Margin in this context is the initial deposit that clients must provide to the exchange to initiate and maintain leveraged positions in the futures, options, or cash segments. Indian exchanges require brokers to post both SPAN (standard portfolio analysis of risk) margin and extreme loss margin (ELM) to cover derivative positions, rather than just the SPAN margin, which is the standard practice globally. SPAN is a proprietary methodology of the Chicago Mercantile Exchange to assess the risk to a trader's portfolio from events that could increase volatility. It is considered adequate to cover 99.975% of likely risk scenarios that could affect a trader's portfolio. However, in addition to SPAN, Indian bourses impose an ELM that is based on the derivative's notional or total value as an added guardrail. This ELM drastically increases the margin an investor has to put up to buy or sell a contract. According to the second person cited above, SEBI could consider reducing the ELM from 2% to 0.5-1% on non-expiry days for a hedged portfolio, with an unhedged portfolio attracting 2% ELM. On expiry day, the ELM would be retained at SPAN plus 4%, he added. For instance, if the SPAN on a Nifty hedged options position at 26,000 index value is Rs.10,000 and the ELM is 2% of the notional value of the contract, the total margin would work out to Rs.49,000 - 2% of the Nifty contract value of Rs.19.5 lakh (26,000x75 shares per contract) plus the SPAN margin . If the ELM were halved to a percent of the notional value , the total margin would drop substantially to 29,500, this person said. Kruti Shah, a quant analyst at Equirus Securities Pvt. Ltd, said, "When I have a hedged position, which mitigates my risk, why should I be charged an exposure or ELM over and above SPAN, which itself is adequate to cover almost all the risk to my portfolio?" The Nifty options premium turnover of Rs.77,379 crore on expiry day for the week ended December 12 was almost 50% more than the average daily turnover of Rs.52,561 crore during the week. Similarly for Sensex, options turnover on expiry day at Rs.53,834 crore was 125% of the average daily turnover for the week ended December 12, reflecting a bias for expiry-day trading. Another broker Mint spoke to said his firm had informally requested SEBI to review margins in the cash segment of exchanges such as BSE and NSE as well. On such trades, the exchanges collect a 20% margin upfront if a client buys or sells a stock intraday. SEBI increased the margin on cash market trading for clients from nearly zero to 20% in phases between December 1, 2020 and September 1, 2021 to mitigate systemic risk from brokers giving certain clients 40 to 50 times leverage. This move caused many traders to move away from intraday trading on the cash segment to weekly trading on index options....