Analysts forecast 40% fall in F&O volumes after new norms

New Delhi: Stock exchanges and brokers, catering to retail traders, could be hit hard by the regulator Sebi’s proposed measures for Futures & Options (F&O) trading regulations, with market volumes slumping 30-40 per cent, according to reports. If these measures are implemented, the number of investors could decrease, it added. Moreover, discount brokers, who depend heavily on retail investors, are expected to be more affected than traditional full-service brokers.

Sebi, in its consultation paper in July, proposed seven measures, including increasing minimum contract size and upfront collection of option premiums, intra-day monitoring of position limits, rationalisation of strike prices, removal of calendar spread benefit on expiry day and increase in near contract expiry margin. Sebi stated that these measures are aimed at enhancing investor protection and promote market stability in derivatives markets. According to a report by Jefferies, Sebi’s proposed measures to reduce the number of weekly option contracts from 18 to 6 could impact around 35 per cent of industry premiums. However, if trading shifts to the remaining contracts, the overall impact can be reduced to 20-25 per cent. Among its 7 proposed measures, IIFL Securities see the highest impact from the withdrawal of weekly options (only 1 per exchange allowed) as index Options account for 98 per cent of the volumes.

IIFL Securities expects the NSE to be more affected than the BSE because 60 per cent of NSE’s revenue comes from options trading, compared to 40 per cent for BSE. It estimates that by the financial year 2026, NSE’s earnings could be reduced by 25-30 per cent while BSE’s earnings could drop by 15-18 per cent.