Securities and Exchange Board of India (SEBI) issued new guidelines to protect retail investors in the Futures & Options (F&O) market. The regulator highlighted significant losses among retail investor, estimated at 50,000 to 60,000 crores last year in F&O trading last year in F&O trading. To address these concerns, SEBI has proposed several measures aimed at curbing speculative trading and safeguarding investor interests.
Proposed Measures by SEBI
SEBI’s new guidelines include several key measures:
– Rationalisation of Options Strikes: Simplifying the trading process for retail investors.
– Upfront Collection of Option Premium from Buyers: Ensuring financial commitment from investors.
– Removal of Calendar Spreads Benefit on Expiry: Mitigating risks associated with calendar spread strategies.
– Intraday Monitoring of Position Limits: Preventing excessive risk-taking by monitoring positions in real-time.
– Increase in Contract Size by Nearly 4x: Limiting retail participation to those with adequate capital.
– Rationalisation of Weekly Index Products: Streamlining products and reducing market volatility.
– Increase in Margin for Near Contract Expiry: Safeguarding against speculative trades and market fluctuations.
Market Reaction and Stock Performance
Despite SEBI’s proposed guidelines, the market saw mixed reactions, particularly in stock performance:
– Angel One Ltd.: Trading 4.68% higher at ₹2,240.60, indicating a reversal from earlier lows.
– Motilal Oswal Financial Services: Trading 2.25% higher at ₹653.05, showing resilience in the face of new regulations.
– Nuvama Wealth Management: Trading at ₹6,319.90, without significant impact, indicating market confidence.
Consultation Paper and Market Impact
SEBI has also floated a consultation paper on the index derivative framework, targeting rising speculative volumes and protecting retail investors. Among its seven proposed measures, the withdrawal of weekly options (allowing only one per exchange) could have the highest impact, as index options account for 98% of the volumes. The proposed increase in contract size by 2-3x could constrain small retail investors, potentially leading to a decline in investor count rather than volumes.
Other measures, such as increasing the ELM around expiry and withdrawing the calendar spread margin on expiry, could raise margin requirements, potentially impacting liquidity. Based on initial estimates, these measures could result in a 30-40% reduction in market volumes.
The earnings impact is expected to be higher for NSE, where options account for approximately 60% of revenues, compared to BSE’s 40%. NSE could see a 25-30% impact on FY26 earnings, while BSE might experience a 15-18% impact. MCX is not expected to be significantly affected by these regulations. Discount brokers, more reliant on retail investors, could face more significant impacts than traditional full-service brokers.
A separate consultation paper on the return of interest income on margin money suggests a higher impact on BSE (~10%) compared to NSE (~4%). MCX could see a 7-8% impact on PAT.
SEBI’s new guidelines aim to protect retail investors by introducing stricter measures in the F&O market.
