SEBI's proposals to address concerns around the Closing Auction Session (CAS) are positive for brokers and stock exchanges, according to Jefferies and Kotak Securities. The brokerages said the proposed changes could reduce volatility around derivatives expiry and support a recovery in trading activity.
Jefferies said SEBI's consultation paper addresses key concerns raised by option traders by proposing changes to the settlement methodology for derivatives and removing the cancellation of limit orders placed beyond the +/-1% reference price during CAS. The regulator has also proposed allowing unexecuted iceberg orders to transition into CAS, which could improve liquidity during the auction window.
According to Jefferies, domestic proprietary traders had initially reported higher losses due to volatility in index prices during the final hour on expiry days after CAS was introduced on August 26. NSE and BSE index options average daily traded turnover fell 17% and 26%, respectively, in August from July, while option orders declined 30%.
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However, activity has shown signs of recovery in September as traders have become more familiar with CAS. September month-to-date options ADTO and daily orders were down only 4% and 9%, respectively, compared with July, Jefferies said.
The brokerage expects the proposed changes to be implemented in October or November, after the consultation process closes on October 3. It maintained a ‘Buy' rating on Groww with a price target of Rs 240, while retaining an ‘Underperform' rating on BSE with a target of Rs 2,940.
Kotak Securities also said the proposals were broadly in line with expectations, with the revised derivatives settlement methodology being the key change. It noted that sustained recovery in trading volumes remains crucial for brokers to meet FY27 estimates.
Kotak said stronger margin trading facility (MTF) growth offers some support. Angel One's MTF book has risen around 20% quarter-on-quarter (QoQ) to Rs 66 billion, while Groww's has increased about 23% to Rs 41 billion.
Jefferies believes Groww offers a better way to play India's equity-market growth, citing broking growth, new initiatives and potential US stock offerings as earnings drivers.
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