Sebi’s meds do the trick in slowing retail options frenzy. Next dose in January.

Analysts predict further declines with new curbs, including higher contract sizes, set to amplify trading costs in January.
Analysts predict further declines with new curbs, including higher contract sizes, set to amplify trading costs in January.

Summary

  • Sebi’s derivatives trading curbs and the market correction since September drove a 25% drop in NSE index options turnover in November. As more of Sebi’s measures kick in next month, further reductions are expected.

The Securities and Exchange Board of India’s recent measures to cool the retail frenzy in derivatives trading are already bearing fruit, even as more curbs aimed at preventing investor losses are set to kick in next month.

Retail and proprietary traders accounted for nearly three-quarters of the drop in premium turnover in index options trading on the National Stock Exchange, signalling the impact of the Securities and Exchange Board of India’s tightened curbs on derivatives trading.

Analysts anticipate a further decline in turnover as the increased contract size mandated by Sebi as part of its curbs will become effective in early January.

Of the 3.36 trillion or nearly 25% month-on-month fall in index options turnover to 10.31 trillion in November, individual and proprietary traders accounted for 2.52 trillion, or 75%, of the decline, shows recently released NSE data. Institutional investors, domestic and foreign, and corporates accounted for the rest of the decline.

Also read | Dr. Sebi tried to cool options fever. Did the medicine work?

The is significant given that NSE held an 87.8% three-month rolling market share in equity options (index and stocks) as of November, with BSE accounting for the rest.

“It shows that there has been an impact of the Sebi curbs, along with a correction in the markets," said Sudhir Joshi, a consultant at the 104-year-old Khambatta Securities.

“As more measures take effect from January, expect more rationalization in turnover," said Joshi, who set up the oil trading desk at Bharat Petroleum Corporation Ltd.

Also read | Mint Primer: A new era awaits India’s F&O market in 2025

The Sebi factor

Alarmed by losses of 1.8 trillion incurred by individuals trading mainly weekly options between FY22 and FY24, Sebi implemented six measures on 1 October to curb retail enthusiasm for derivatives (futures and options).

Of these, an increase in extreme loss margin on expiry day at the contract level and rationalization of weekly index options from multiple expiries per week to just one per exchange began last month.

Effective the first week of January, the third measure of increasing Nifty and Sensex contract sizes to 15-20 lakh from 5-10 lakh will get underway.

Also read | India’s stock market in 2025 and the growing appeal of US bonds

“This will probably impact turnover even more as the cost of trading goes up for option sellers," explained Rajesh Palviya, head of derivatives trading at Axis Securities.

In addition to the market correction since September, Palviya attributed “a large part" of the 25% decline in index options turnover in November to Sebi’s curbs on margin and single weekly contract.

“I'd estimate 75% of the 25% decline to have come because of the regulatory curbs and the rest to the downturn in markets," he said.

The benchmark Nifty plunged 11.5% from a record high of 26,277.35 on 27 September to a low of 23,263.15 on 21 November following tepid corporate earnings in the September quarter and a rise in US bond yields, which sparked off almost $14 billion in foreign portfolio investor outflows during October-November, according to the National Securities Depository Ltd.

Also read | Top sectors to pick and avoid in 2025

Catch all the Business News, Market News, Breaking News Events and Latest News Updates on Live Mint. Download The Mint News App to get Daily Market Updates.
more

topics

MINT SPECIALS