Sebi’s Bold Six-Step Strategy Poised to Dramatically Reduce F&O Volumes by 40% | Stock Market Today

October 2, 2024 2 Min Read

Sebi’s Six-Step Plan to Curb Retail Speculation May Slash Trading Volumes by 30-40%

By Binay Sinha | Last Updated: Oct 02, 2024 | 10:29 PM IST

The Securities and Exchange Board of India’s (Sebi) new six-step measures to limit retail participation in speculative index derivatives are expected to substantially reduce trading volumes, potentially by 30-40%. Aimed at curbing excessive speculation in the futures and options (F&O) segment, these new rules target the segment’s daily turnover, which often surpasses Rs 500 trillion, disproportionately affecting retail investors who frequently face significant losses.

Effective steps include increasing the contract size from Rs 5 lakh to Rs 15 lakh, raising margin requirements, and mandating upfront collection of option premiums from buyers. These measures are designed to create higher entry barriers for retail investors who have been consistently incurring losses. A recent analysis suggests trading volumes on the National Stock Exchange (NSE) could decline by nearly one-third. Additionally, the increase in the securities transaction tax is likely to further impact futures trading volumes.

There is speculation that some trading volumes might shift to the Gujarat International Finance Tec-City (GIFT City) due to its broader range of weekly options still available. Analysts highlight that while the NSE remains the dominant player with an average of 10.8 billion equity derivatives contracts monthly, GIFT City represents a growing but still minor share.

Zerodha, a leading broker, estimates the regulatory changes could slash revenues by 30-50%, prompting brokers to diversify revenue streams to mitigate the anticipated impact. During the first quarter of 2024-25, NSE’s income from transaction charges reached Rs 3,623 crore, with the majority generated from the F&O segment. Sebi’s measures could also inflate trading costs due to increased margin requirements, potentially distorting the market and creating higher costs for both retail and institutional investors.

Three of the six measures will take effect from November 20, with the remaining phased in by February and April next year. Sebi’s expert group will monitor the impact and make necessary adjustments as needed.

Key Points:

Sebi introduces higher contract sizes, margins, and upfront collection of premiums for option buyers.
Some measures effective from November 20; others phased in by February and April next year.
Over 93% of retail traders incurred losses between FY22 and FY24.
The BSE expected to face less impact than the NSE.
Zerodha anticipates a 30-50% dip in revenues.

First Published: Oct 02, 2024, | 7:43 PM IST

Original Story https://www.business-standard.com/markets/stock-market-news/sebi-s-six-step-measures-seen-making-a-dent-in-f-o-volumes-by-up-to-40-124100200764_1.html
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