Zerodha Co-founder Nithin Kamath expects 60% drop in total futures and options trades and nearly 30% decline on the company's platform, following the implementation of one weekly expiry of index derivative per exchange and rise in contract sizes.
The Securities and Exchange Board of India on Tuesday introduced a range of new measures under its derivatives framework to strengthen the equity F&O market.
The new regulations range from limiting one benchmark index per exchange for weekly expiry derivatives contracts to mandatory upfront collection of option premiums from buyers.
"As things stand, assuming that those trading weekly don't move on to trading monthly, the impact will be ~60% of overall F&O trades and ~30% of our overall orders," Kamath said.
The Zerodha Chief Executive Officer also stated that the brokerage will decide on change in pricing structure, based on the impact on the business, after the rules kick in from Nov. 20.
At present, the NSE offers four index options contracts with a weekly expiry, while the BSE offers two.
Here's the potential impact of only one weekly expiry of index derivatives per exchange and contract sizes going up by around 2.5 times.
October 3, 2024
As things stand, assuming that those trading weekly don't move on to trading monthly, the impact will be ~60% of overall F&O trades and ~30%…Kamath's view aligns with other market participants.
Trading volumes in India's F&O segment could be reduced to half their current levels, after the equity market regulator's new regulations to curb the frenzy kick in, according to people familiar with the matter.
They expect around 50–60% of traders to exit the segment due to higher contract sizes. National Stock Exchange Ltd. has not yet determined which benchmark it will select for weekly expiry, they said.
The regulator's curb could have an overall impact of 30–35% due to the exclusion of low-volume retail investors, according to calculations made by NDTV Profit. The reduction in weekly index derivative expiry could impact volume by around 60% on India's top bourse, the calculation showed.
The average transaction cost impact would be around 30% increase in the form of true-to-label and securities transaction tax charges that came into effect from Oct. 1. On the average open interest front, the impact could range from 35–45%, the study showed.
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