Retail and proprietary (prop) traders accounted for nearly three-quarters of the drop in premium turnover in index options trading on the National Stock Exchange (NSE), signaling the impact of SEBI’s tightened curbs on derivatives trading.
Analysts anticipate a further decline in turnover as the increased contract size takes effect in early January, compounded by the recent market downturn.
Of the ₹3.36 trillion or nearly 25% month-on-month fall in turnover to ₹10.31 trillion in November, individual and prop 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.
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The data is significant, given that NSE held an 87.8% three-month rolling market share in equity options (index and stocks) as of November end, 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, consultant to 104-year-old Khambatta Securities.
“As more measures take effect from January, expect more rationalisation in turnover,” Joshi, who set up the oil trading desk at BPCL, said .
Alarmed by the ₹1.8 trillion losses incurred by individuals trading mainly weekly options between FY22 and FY24, SEBI implemented six measures on 1 October to curb retail enthusiasm for derivatives.
Of these, increase in extreme loss margin on expiry day at contract level and rationalisation 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 get under way.
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“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.
Palviya believes that more than the market correction from September end, “a large part” of the 25% decline in turnover in November from the previous month was attributable to the Sebi 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 added .
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The benchmark Nifty plunged 11.5% from a record high of 26277.35 on 27 September to a low of 23263.15 on 21 November following tepid earnings in the September quarter and a rise in US bond yields, which sparked off almost $14 billion FPI outflows during October-November, according to NSDL.
