The Securities and Trade Board of India (Sebi) Tuesday elevated the minimal contract measurement in index derivatives to ₹15 lakh from the present ₹5 lakh, making choices buying and selling costlier. On the identical time, it decreased weekly index product choices to only one per trade, in search of to curb frenzied hypothesis amongst retail merchants.
“Given the inherent leverage and better danger in derivatives, this recalibration in minimal contract measurement, in tune with the expansion of the market, would be sure that an inbuilt suitability and appropriateness standards for contributors is maintained as meant,” Sebi stated in a round.
Businesses ‘Will Influence Exchanges’ Revenues’
A research by the regulator had proven that 11 million merchants within the derivatives phase made a mixed lack of Rs 1.81 lakh crore over the previous three years, with simply over 7% of the merchants within the phase earning money. A number of market commentators have expressed considerations over the retail frenzy, arguing in favour of measures that will curb speculative buying and selling within the phase. Sebi has elevated the minimal contract measurement for index derivatives resembling Nifty and Sensex to Rs 15 lakh from the prevailing vary of Rs 5-10 lakh. The present minimal contract measurement of Rs 5 lakh to Rs 10 lakh was final set in 2015. Henceforth, this vary might be Rs 15 lakh to Rs 20 lakh.
Through the previous 9 years, the benchmark indices have gone up practically 3 times. “Each exchanges will see much less commerce volumes on account of these modifications, and we anticipate a 10-15% quantity dry-down from November. This can even impression their revenues,” stated Rajesh Palviya, head of technical and derivatives analysis, Axis Securities.
Low cost Brokers
Low cost brokers which have harnessed excessive volumes and buying and selling frequency “can even take a success to their volumes and revenues, as the price profit offered to excessive frequency merchants, scalpers or algo merchants will now now not be out there,” stated Palviya.
This measure can be efficient for all new index derivatives contracts launched after November 20, 2024.
India’s derivatives market turnover has considerably surpassed that of the money market. India accounts for 30-50% of worldwide exchange-traded by-product trades, Sebi had stated in a dialogue paper in July.
Whereas money market annual turnover elevated by simply over two occasions between FY20 and FY24, index choices annual turnover on a premium foundation has risen by over 12 occasions – from Rs 11 lakh crore in FY20, to Rs 138 lakh crore in FY24.
The regulator stated every trade might be allowed to supply derivatives contracts for less than certainly one of its benchmark indices with weekly expiry.
At current, there are weekly by-product contracts for benchmark indices and the Financial institution index. With the launch of weekly derivatives contracts on the benchmark index by NSE in February 2019, there was a shift in buying and selling exercise towards index choices contracts.
“This can lead to decreased volumes for exchanges. Influence on BSE might be greater than that on NSE as BSE caters to 2 expiry days/week whereas NSE caters to a few expiry days/week,” stated Abhilash Pagaria, head of Different & Quantitative Analysis, Nuvama Wealth.
“This provides BSE a shot at having 50% market share in weekly choices contract volumes. We’re constructing in 30% decline in total possibility volumes, which we consider might be greater than adequate to cowl the impression of this regulation,” Pagaria stated.
