Inventory exchanges and brokers, catering to retail merchants, may very well be hit laborious by the regulator SEBI’s proposed measures for Futures & Choices (F&O) buying and selling laws, with market volumes slumping 30-40%, in keeping with stories.
If these measures are carried out, the variety of buyers may lower, it added.
Furthermore, low cost brokers, who rely closely on retail buyers, are anticipated to be extra affected than conventional full-service brokers.
SEBI, in its session paper in July, proposed seven measures, together with rising minimal contract dimension and upfront assortment of possibility premiums, intra-day monitoring of place limits, rationalisation of strike costs, removing of calendar unfold profit on expiry day and enhance in close to contract expiry margin.
SEBI said that these measures are aimed toward enhancing investor safety and promote market stability in by-product markets.
In keeping with a report by Jefferies, Sebi’s proposed measures to scale back the variety of weekly possibility contracts from 18 to six may affect round 35 per cent of business premiums. Nevertheless, if buying and selling shifts to the remaining contracts, the general affect might be decreased to 20-25 per cent.
Amongst its 7 proposed measures, IIFL Securities see the very best affect from the withdrawal of weekly choices (just one per change allowed) as index Choices account for 98 per cent of the volumes.
IIFL Securities expects the Nationwide Inventory Trade (NSE) to be extra affected than the BSE as a result of 60% of NSE’s income comes from choices buying and selling, in comparison with 40 per cent for BSE. It estimates that by the monetary yr 2026, NSE’s earnings may very well be decreased by 25-30 per cent whereas BSE’s earnings may drop by 15-18 per cent.
Jefferies additionally believes that removing of Bankex weekly contract can affect BSE’s earnings per share (EPS) by 7-9% over FY25-27.
It additional stated that BSE would possibly see a small decline in earnings, but when buying and selling exercise shifts from discontinued merchandise, it may offset the affect and even result in earnings development.
“We do not see any affect on MCX from these laws. Throughout the worth chain, low cost brokers are more likely to be extra impacted than conventional full service brokers given former’s dependence on retail buyers,” IIFL Securities stated.
Jefferies believes that clearing members like Nuvama, which caters to institutional gamers Excessive-Frequency Merchants (HFTs) and International Portfolio Buyers (FPIs) are much less impacted.
Rationalizing weekly choices to just one benchmark index per change will considerably have an effect on the NSE as a result of it at present has 4 weekly index expiries, with “Financial institution Nifty” being a very powerful, contributing to 50% of its choices quantity. The change may scale back NSE’s general buying and selling volumes by 30-35%, IIFL Securities stated. However, BSE is anticipated to be much less affected because it solely has two contracts, with Sensex making up 85 per cent of its volumes in FY24.
Even when “Bankex” contributes 30% by FY26, the affect on BSE’s volumes is anticipated to be smaller in comparison with NSE, it stated.
Moreover, with simply two expiries, BSE would possibly truly acquire market share and expertise larger buying and selling volumes, leading to an estimated 20 per cent discount in its general volumes, it added.
Jefferies stated that Sebi’s proposed measure of accelerating lot sizes by 3-4 instances over six months may result in larger prices for retail merchants, doubtlessly lowering their participation out there.
The proposed margin enhance for choices sellers near expiry may scale back leverage and profitability, particularly for retail merchants with restricted funds. “Lastly different measures like rising ELM (excessive loss margin) round expiry, withdrawal of calendar unfold margin on expiry will enhance the margin necessities and thereby may affect the liquidity. Based mostly on our preliminary estimates we count on a 30-40 per cent affect on market quantity,” IIFL Securities stated.
Sebi Chief Madhabi Puri Buch not too long ago talked about that households are dropping as much as Rs 60,000 crore a yr within the problematic futures and choices phase.
Earlier, Sebi analysis confirmed retail merchants lose cash in 9 out of 10 trades within the F&O phase Final month, the federal government within the Union Funds raised the securities transaction tax (STT) on each futures and choices commerce from October 1 to allay considerations about hyperactive curiosity within the by-product phase.
Earlier than that, the Financial Survey flagged considerations over rising retail buyers’ curiosity in by-product buying and selling. The survey said that speculative commerce has no place in a creating nation.
It additionally identified that the sharp enhance in retail investor participation in F&O buying and selling is probably going pushed by people’ playing instincts.
