Scholars have noted that the National Stock Exchange (NSE) remains the favorite for options trading after SEBI resorted to some changes in the futures and options (F&O) market. The new regulations are effective in preventing and controlling excessive retail speculation and impending market stability and fluctuations; they have therefore made trading activities more dynamic.
Key shifts in trading volumes were observed after the reforms:
- Bank Nifty: Witnessed a reduction in average daily value traded (ADVT) by 33% from ₹ 18,250 crore to ₹ 12,259 crore.
- Bankex: Sustained a stunning 98% decline year-on-year, falling from ₹1,927 crore to ₹41 crore.
- Nifty and Sensex: Demonstrated an opposite trajectory for ADVT where Nifty increased 40% to ₹41,301 crore and Sensex was up by 14% to ₹8,314 crore.
- Overall Options Turnover: NSE also exhibited a slight rise and stood at ₹62,511 crore from ₹59,615 crore and BSE shrunk from ₹9,228 crore to ₹8,355 crore.
Reasons Behind the Changes
Akshay Chinchalkar, Head of Research at Axis Securities said these changes were due to “a reduced number of instruments and expiration options, higher margins due to increased minimum contract values, and the market correction since September.” He also added that “foreign investors trimming positions toward the year-end period and thinner volumes have contributed to this trend.”
Regulatory Changes
In October SEBI came up with a six-point plan to curb speculative activity in the stock market. Measures include:
- Raising the minimum contract size from ₹ 10 lakh to ₹ 15 lakh.
- Limiting weekly expiry contracts to one standard per exchange.
- Introducing pre-exercised intra-day position management and insisting on upfront premium payment.
“SEBI’s six-point circular to counter excessive participation of retail in derivatives has come into play. Weekly expires have been now restricted to Nifty and Sensex. Traders have shifted their strategies as per this new regime to trade Nifty and Sensex and pulled out of Banknifty and Bankex,” said Shrey Jain, Founder & CEO of SAS Online.
Conclusion
Last week witnessed the expiry of the Bank Nifty weekly options which attracted a tremendous response since it was launched in August 2016. The move comes in handy in addressing SEBI’s objective of increasing stability in the market related to derivatives. With the traders reconsidering their approaches to adjust to the new norms, the emphasis is on fostering well-disciplined and steady development of the F&O market.
