Retail Investors Are Hopping Platforms To Satisfy Their Speculative Urge

Initial data shows that premium turnover has declined on an overall basis, but also shifted to Nifty and Sensex weekly options. Thursdays and Fridays have become high turnover days, with traders moving seamlessly from Nifty expiry trades to Sensex expiry trades.

According to data available, NSE has seen an average drop of 16% to its weekly index premium turnover—far lower than was estimated and BSE has seen its average weekly premium turnover rise by as much as 64%. To be clear, BSE premium turnover is still significantly lower in absolute terms, compared to NSE. But a significant portion of turnover has increased to Fridays — the weekly expiry of Sensex weekly option.

Initial data shows that premium turnover has declined on an overall basis, but also shifted to Nifty and Sensex weekly options. Thursdays and Fridays have become high turnover days, with traders moving seamlessly from Nifty expiry trades to Sensex expiry trades.

According to data available, NSE has seen an average drop of 16% to its weekly index premium turnover—far lower than was estimated and BSE has seen its average weekly premium turnover rise by as much as 64%. To be clear, BSE premium turnover is still significantly lower in absolute terms, compared to NSE. But a significant portion of turnover has increased to Fridays — the weekly expiry of Sensex weekly option.

The Securities and Exchange Board of India imposed tighter norms to dissuade retail trading in the derivatives market. As part of the phased implementation, each exchange was allowed weekly expiry for only the benchmark index, that is, Nifty 50 and BSE Sensex.

Further the lot sizes were increased to ensure cost of trading increases and minimum trade size rises for the retail investors gambling in derivatives.

As per the initial data available from BSE and NSE, the country's largest stock exchange has seen drop of nearly 16% in weekly average for index premium turnover, while BSE has seen an increase in index average premium turnover.

The directional decline in index turnover is in line with the street expectation, but the quantum is much lower than the expected decline.

This is because NSE, which had four weekly index expiries—with the bulk of the trading turnover coming from the Nifty Bank index weekly option — has seen a shift to Nifty 50 weekly index and Nifty Bank monthly expiry.

During the period April to September 2024, the premium turnover for the monthly expiries was Rs 9.20 lakh crore and the premium turnover for the weekly expiry in Bank Nifty was Rs 25.96 lakh crore. So, roughly 75% of the total premium turnover is weekly expiries and about 25% is monthly expiries, NSE disclosed during the second quarter earnings call.

NSE had expected a reasonable impact to weekly turnover from shift of Nifty Bank to a monthly contract.

It is somewhere between 45:55, where Nifty is 45, and Bank Nifty is 55. So, some of that may spill over into Nifty, but some portion will actually disappear, said Ashishkumar Chauhan, managing director and chief executive officer of NSE, during the second quarter earnings call.

It is still early trends, market has seen index premium turnover shift from Nifty Bank to Nifty and at the same time migration from NSE to BSE's Sensex weekly option. Retail investors are hopping platforms to speculate in derivatives.

The bottom line is that SEBI's objective to curb speculation in derivative market through weekly option has not been fully impacted, requiring the regulator to do more.