Capital market stocks faced selling pressure on August 5 after a report said market regulator Securities and Exchange Board of India (SEBI) is considering to curb weekly expiries in order to rein in speculative trading.
BSE stock fell the most among the 15 constituents of the Nifty Capital Markets index by trading 5.5% lower at Rs 2,351 apiece at 2:35 pm after Zee Business reported about a likely SEBI consultation paper on various measures to curb option trading.
The report said that in a meeting with SEBI officials, the Ministry of Finance said weekly expiries are only increasing speculation and not contributing to the nation's economy.
Zee Business reported that SEBI is said to be evaluating various options, including reducing weekly expiries to either bi-monthly or monthly and also considering an increase in margin requirements for option trading while reducing the margin requirements for cash trades.
Another option being explored is increasing Securities Transaction Tax on option trading to disincentivise speculation and to reduce STT on cash trading to encourage it, the report said. However, the report added, the move on STT wouldn't be possible before the Union Budget next year.
However, SEBI will float a discussion paper for stakeholder consultation on the various options and the outcome of the consultation will be taken up by the SEBI board, which would mull over measures towards curbing option trading, the channel reported.
Such measures could be detrimental for capital market stocks as they could potentially lead to lower option volumes, reduce expiry-day volatility and a consequent dip in revenue.
On August 5, shares of Central Depository Services (India) Ltd and Motilal Oswal Financial Services were trading 0.81% and 1.83% lower, respectively.
Meanwhile, shares of Angel One were trading 1.5% lower at Rs 2,588 apiece.
Last month, SEBI whole-time member Ananth Narayan expressed concerns over huge volume in short-term F&O contracts and also said that the regulator would look improve the quality of the F&O market "by extending the tenure and maturity of the products and solutions on offer".
"As many experts have pointed out, our Indian derivative market ecosystem is quite unique, in that on expiry days, comparable turnover in index options are often 350 times or more the turnover in the underlying cash market –an imbalance that is obviously unhealthy, with several potential adverse consequences," said Narayan at 11th Capital Markets Conclave of CII in Kolkata.
"Research has suggested that expiry day option trading increases market volatility and could lead to noise trading that may potentially undermine confidence in price formation. Unlike longer term derivatives, short-term derivative products such as expiry day trading in index options may detract from capital formation," added Narayan.
Leading stock brokers' association the Association of National Exchanges Members of India (ANMI) has been advocating for reforms in retail participation in equity F&O, where over 90 percent of traders continue to incur losses despite recent safeguards. ANMI suggests strengthening eligibility norms, position limits, risk management frameworks, and investor protection measures to ensure responsible and sustainable participation.
Sebi, in a study published on July 7, said the number of unique individual investors trading in F&O is down by 20 percent compared to the previous year, but it’s up by 24 percent compared to two years ago. In the study, it is seen that traders with total turnover less than Rs 1 lakh witnessed the highest degrowth compared to the previous year. The same bucket witnessed the highest increase in unique investors in F&O compared to two years ago.
The study indicates that the net losses of individual traders widened by 41 percent to Rs 1,05,603 crore in FY25 from Rs 74,812 crore in FY24, after accounting for transaction costs. The percentage of traders making losses in F&O remained broadly unchanged at 91 percent or 9 out of 10 investors, from the earlier study done by Sebi.
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