Indian Derivatives Volumes May Halve After SEBI F&O Curbs Take Effect

Trading volumes in India's futures and options 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 sources.

While the volumes could drop by as much as 50%, the aforementioned sources told NDTV Profit. 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.

According to the sources, the Securities and Exchange Board of India could take further action if trading volumes in derivatives remain unaffected.

India's securities market regulator introduced a range of new measures under its derivatives framework to strengthen the equity index derivatives 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.

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, according to NDTV Profit. On the average open interest front, the impact could range from 35–45%, the study showed.

The average trade size in futures and options could increase to Rs 20,000 from Rs 5,550 in fiscal 2025, the study showed.

In its Tuesday circular, SEBI highlighted that increased retail participation, short-tenure index options contracts, and heightened speculative trading volumes on expiry days have impacted the market.

The market regulator's announcement came after the SEBI board meeting on Monday, where it was expected to approve the recommendations of the expert working committee and secondary market advisory committee aimed at tightening regulations for retail individual derivative traders.