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The Securities and Exchange Board of India (SEBI) has proposed measures to curb speculation by retail traders in the Futures and Options (F&O) segment, a move analysts say will significantly impact market intermediaries. The consultation paper issued by SEBI on Tuesday suggests limiting weekly options contracts to one index per exchange, increasing the minimum lot size, and requiring the collection of the premium amount upfront, among other measures.
According to Jefferies, a foreign broking firm, limiting the number of weekly expiries could remove 12 out of 18 weekly option contracts and affect approximately 35% of industry premiums. The report suggests that stock exchanges and retail-focused brokers are expected to bear the brunt of the proposed changes, whereas institutional players might manage to absorb the impact more effectively.
Jefferies’ analysis notes, “Exchanges and retail-focused brokers are likely to be most affected by these proposed regulations. Clearing members such as Nuvama (Asset Services business), which cater to institutional players like HFTs and FPIs, may experience some secondary effects but are generally less impacted.”
Discount brokers, such as Zerodha and Angel One, along with stock exchanges, are anticipated to be the most significantly affected. Traditional brokers like Motilal Oswal, IIFL, and ICICI Securities will also be affected, but not to the same extent, according to IIFL Securities. The IIFL report suggests that discount brokers will be more impacted than traditional full-service brokers due to their reliance on retail investors.
Among stock exchanges, NSE is likely to be harder hit as options account for about 60% of its revenues (FY25 estimates), compared to around 40% for BSE. IIFL Securities estimates a 25-30% impact on NSE’s FY26 earnings and 15-18% for BSE, while MCX is not expected to be impacted by these regulations. Jefferies notes that the elimination of the Bankex weekly contract may reduce BSE’s EPS by 7-9% over the fiscal years 2025 to 2027.
However, Jefferies provides an alternative view, proposing that the spillover of trading activity from discontinued products could mitigate the EPS impact. In the case of a moderate industry-wide effect from SEBI measures, this could even result in EPS upgrades.
SEBI’s consultation paper, released on July 30, revealed that around 9.2 million unique individuals and proprietorship firms collectively suffered a loss of Rs 517 billion in FY24. Only about 15% of traders, or roughly 1.4 million, achieved net profits. In contrast, larger non-individual entities such as HFTs, algo-traders, and FPIs typically recorded offsetting profits.