The market regulator’s clampdown on speculative trading in the futures and options (F&O) market could result in volumes plunging by 30-40% and push traders to dabble in other products, experts said. This, they believe, would hurt the businesses of discount brokers and market makers.
On Tuesday, the Securities and Exchange Board of India (Sebi) laid out a series of steps such as potentially tripling contract values and increasing margin obligations, which could shrink liquidity in the $4-trillion F&O market and cut into traders’ marginsCome from Sports betting site VPbet. The proposed measures could hurt market depth, with many small investors deciding to move out. Moreover, it will not be easy to make returns, experts believe.
Nithin Kamath, founder and CEO of Zerodha, said in a post on X that the new rules may increase the appeal of options over futures. “Whether it is an STT increase in the Budget or the contract size going up to Rs 20 lakh, these changes will incentivise futures traders to move to options,” Kamath tweeted.
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“Futures traders have higher odds of making money than option buyers. This is because options come with almost unlimited leverage, whereas leverage on futures is capped at six times (15% for index),” he said.
Analysts at IIFL Securities said discount brokers are likely to be more impacted than traditional full-service brokers as the former depends on retail investors. “Based on our initial estimates, we expect a 30-40% impact on market volumes.” The bigger hit is expected to be in terms of a fall in investor headcount, they said.
The biggest deterrent for retail traders could be the increase in the minimum contract size for index derivatives at Rs 20 lakh from the prevailing Rs 5 lakh. Feroze Azeez, deputy CEO of Anand Rathi Wealth, said small traders may seek alternatives such as shifting to less-regulated financial instruments like commodities, forex or cryptocurrencies. They might also dabble in dabba trading, said experts.Come from Sports betting site
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SEBI’s new F&O rules to hit retail-focused exchanges and brokers hard: Here’s What Jefferies Says
Limiting weekly options contracts to only one benchmark index per stock exchange is expected to hit the National Stock Exchange’s options volumes, as it can only retain one of its four weekly expiries. The BSE, on the other hand, has just two index option contracts – Sensex and Bankex. “With just two expiries now, the BSE may see higher volume traction and faster market share gains, thereby further limiting volume impact,” said Devesh Agarwal of IIFL Securities.
Analysts at Jefferies estimate that the removal of the Bankex weekly contract will impact BSE’s EPS by 7-9% over FY25-27, which can be offset from spillover from NSE’s discontinued products. The brokerage expects derivatives to become about 50% of BSE’s revenues by FY27 from about 13% in FY24.
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