The Securities and Exchange Board of India (SEBI) has introduced stricter measures for the derivatives market, potentially leading to a significant reduction in futures and options (F&O) trading volumes.
According to media reports, market experts predict a potential 50% drop in trading activity once the new regulations come into effect.
The regulatory changes include an increase in the minimum contract size for index derivatives from Rs 5 lakh to Rs 15 lakh.
This move is likely to impact small-scale traders, with sources suggesting that 50-60% of traders might exit the F&O segment altogether due to the higher entry costs.
“If there is no change in the volume of the derivatives market after the implementation of the new rules, then SEBI can take further action,” one industry insider revealed.
The increased contract size is likely to raise the average trade value in futures and options to Rs 20,000 by the fiscal year 2025, compared to the current Rs 5,500.
SEBI’s latest measures, announced on Tuesday, come in response to growing concerns over retail investors suffering heavy losses in the derivatives market.
A recent study by SEBI revealed that over the past three years, 1.10 crore traders in the F&O segment incurred collective losses amounting to Rs 1.81 lakh crore.
Alarmingly, only 7% of these traders managed to make a profit during this period, raising questions about the sustainability of the segment for retail participants.
Another notable change is the reduction in the frequency of weekly index expiries.
Exchanges will now be allowed to offer just one expiry per week on any benchmark index, a move designed to curb excessive speculation.
In addition to SEBI’s new rules, the government has also increased the securities transaction tax (STT) on F&O trades starting from 1 October, further tightening the regulatory framework surrounding derivatives trading.
The combined effect of these changes is likely to reshape the market, particularly for retail investors, with SEBI hoping to strike a balance between investor protection and market stability.
The new rules are likely to take effect from 20 November, marking a major shift in India’s derivatives market landscape.
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