Nithin Kamath, CEO of the Indian brokerage firm Zerodha, voiced concerns over the future of weekly options contracts on Monday, stating he "would not be surprised if they were banned completely." Kamath shared his views on 'X' (formerly Twitter) and admitted to being "as clueless as everybody else" regarding the fate of these popular trading instruments.
He pointed to regulatory action as "by far the biggest risk for brokers," a threat magnified because most brokers' earnings are from traders, and they earn nothing from investors. Kamath wrote, "Many people have been asking me about my view on weekly options and whether they are going away. I am as clueless as everybody else."
He added, "Having said that, I would not be surprised if they were banned completely, and/or if there is some product suitability framework that makes it harder for people to trade F&O. By the way, as I've said numerous times before, regulatory risk is by far the biggest risk for brokers like us. This risk is magnified even more because most brokers' earnings are from traders, and they earn almost nothing from investors (like with us)."
Kamath posted data that showing a sharp decline in market activity. He wrote, "Check the image that shows the drop in exchange option volumes since weekly expiries were reduced to two. They are down by almost 40% in a bull market. Now imagine if the remaining two get removed. We'd be back to 2019 levels more or less. We earn nothing from investors, either as brokerage or commissions from selling mutual funds. The more I think about it, we are just biding time before we will be forced to make a change."
Nithin Kamath On Weekly Option Expiries
On Weekly Option Expiries, the Zerodha co-Founder said, "As the CEO of a brokerage firm, I would say weekly expiries with a product suitability framework sound reasonable to me. But if I were an outsider to the broking industry, I would understand the logic behind completely removing weekly expiries."
Kamath also had an insight for those who claim that we are the biggest derivative market and compare India to the US. Referencing to his earlier post on July 31 where he highlighted a stark contrast in leverage, with U.S. margin debt hitting $1 trillion versus India’s $10 billion, supported by Wilshire 5000 and margin debt data from Isabelnet.
He challenged the narrative that India’s options trading is overly risky. He ended his take saying that the narrative that India is somehow dangerously overleveraged because of the number of options contracts traded, is misguided.
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