SEBI Curbs And Liquidity Fear: Options Premium Turnover Yet To Reflect Impact

The recent changes by the Indian market regulator Sebi in options trading don't seem to have had a significant impact in the premium turnover in options trading, according to data disclosed by the stock exchanges.

There have been fears of reduced liquidity following the Sebi order on Jane Street, which doesn't reflect in the trades undertaken on the stock exchanges.

The calibrated regulations on delta trading and limitation on trades based on delta trades have reduced risks while maintaining the market turnover at levels seen prior to the July 4 order against Jane Street.

Sebi has put in place regulations which limit open interest position sizes in derivatives in terms of delta from July 1.

Understanding Open Interest Positions

Delta denotes the sensitivity of the price movement of derivative position with respect to that of the underlying. Open Interest positions are calculated based on whether the position taken is long or short. The new rules require open interest to be calculated based on Futures Equivalent of Open Interest, so while it does not opush any stock into ban, it also restricts the extent of position taken measured at a portfolio level.

The regulation limits the Open Interest at Rs 1500 crore at the end of day and gross Futures Open Interest at rs 10,000 crore at either side i.e. Gross Short or Gross Long positions.

Premium turnover across the both the exchanges has remained relatively stable since the beginning of July and after Jane Street order. BSE is seen premium turnover of around Rs 19,500 crore to Rs 20,500 crore range, while Nifty which witnessed Rs 61,000 crore in last Thursday turnover could see a similar premium turnover on July 10 weekly expiry.

BSE is seen consolidating its market share at 23-25% level for the last three months but this is seen reversing once the expiry days are swapped at the end of August. Nifty will move to Tuesday expiry and Sensex will move to Thursday expiry.

This move is likely to impact the premium turnover for the Sensex, but the recent move to limit positions based on delta will ensure the impact could be limited.