SEBI and new F&O rules have led to a 60% drop in index options volume and reduced broker profits. Learn how these regulations are reshaping India’s derivatives market.
Recent regulatory changes by SEBI (Securities and Exchange Board of India) have significantly impacted the Futures and Options (F&O) market. A new report by rating agency ICRA highlights that SEBI’s stricter rules, effective from December 2024, have notably influenced market dynamics, particularly within index options trading.
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Drastic Decline in Index Options Volume
- Index options trading volumes dropped sharply by 60%.
- Average daily premium traded in index options reduced by about 18%.
- Decline primarily due to reduced speculative activities and increased trader caution.
Smaller Trades Hit Hardest
- SEBI’s new rules restrict weekly expiries and increase index contract values.
- Participation from smaller investors significantly declined.
- Trades below ₹10,000 turnover reduced by 49%.
- Trades between ₹10,000 to ₹1 lakh turnover declined by 37%.
- Increased entry barriers and higher margin requirements discourage frequent low-value traders.
Impact on Broking Firms
- Brokerage firms witnessed sharp profitability decline.
- ICRA reports a 19% decrease in net revenues and 26% drop in net profits in the last quarter.
- Reduced brokerage income due to falling trade volumes creates challenging conditions for brokers.
- Firms are forced to rethink operational strategies to adapt to new regulations.
Possible Stabilization in the Long Term
SEBI and new F&O Rules:
- Initial turbulence is being followed by early signs of market stabilization.
- Traders shifting towards longer-duration contracts, which can help reduce volatility.
- Focus shifting to stable, predictable positions.
- Long-term expectation: healthier and more disciplined trading environment.
The Way Forward
SEBI and new F&O Rules:
- SEBI’s stringent rules aim to improve market integrity and sustainability.
- Market participants expected to recalibrate strategies to comply with new norms.
- Anticipation of a more stable and less speculative market in the long run.
- Ongoing monitoring by SEBI will be crucial to balance investor protection with market vitality.
Credit: This blog post is based on the original report published by Moneycontrol Hindi.