Dabba trading platforms ramp up marketing drive to woo F&O traders bracing for SEBI norms

Hike in securities transaction tax (STT), announced in the July Budget, also contributed to the migration to less-regulated platforms.

Dabba trading platforms, which have been doing brisk business since the beginning of this year, are expecting further windfall gains. They are looking forward to a renewed surge in their business with the new rules on index derivatives being rolled out. The move comes with the US Presidential elections scoring a big win for a crypto-friendly administration.

Stock exchanges have started scrapping contracts to fall in line with the market regulator's mandate that each exchange is allowed to have derivative contracts for only a single index that expires every week. From November 20 onwards, two more regulations on index derivatives will come into effect. First, the minimum size of a contract will go up to Rs 15 lakh from between Rs 5 lakh and Rs 10 lakh. Second, traders will need to pay a higher margin to cover extreme events.

Influencers, who promote these platforms, told Moneycontrol that with the Securities and Exchange Board of India's (SEBI's) new regulations being rolled out, the dabba trading platforms have intensified their marketing drive to woo more Futures & Options (F&O) traders.

Representatives of the regulated markets have said that they are yet to see the effect of the new norms play out on their volumes. In the beginning of this month, the business head of India’s leading stock exchange, National Stock Exchange (NSE), Sriram Krishnan, told media persons that the effects of the new curbs are yet to be felt in the trading volumes. However, they are likely to become evident from January or February, he added.

Also read: How Sebi's seven proposals for index derivatives could affect traders

Zerodha's Chief Executive Officer (CEO) and founder, Nithin Kamath, had written in his blog post that the SEBI norms around index derivatives trade could cause up to 50 per cent dip in their revenues later this financial year. Kamath had put out the post on September 24 on the 14th anniversary of the brokerage firm's operations.

The unregulated players are upping their game.

An influencer, who promotes a crypto-trading platform, said that people started moving to unregulated platforms and are buying illegal access to brokers' prop accounts since January.

What is triggering the shift?

There were several factors that contributed to the shift.

Earlier this year, a sudden spike in option premiums (prices) was noticed. Though this trend had started from the end of last year, F&O traders became more vocal about price spikes wiping out their capital since January and February.

The price spikes turned off a large section of the public from trading. Some chose to migrate to less-regulated or unregulated platforms because they believed that the price spikes were being caused by strategies employed by high-frequency traders.

Speculation was rife that US-based trading firms were raking in the moolah in the Indian market. Retail Indian traders feared that they stand no chance against their high-volume peers.

The SEBI also stepped in to regulate the index derivatives. It floated a consultation paper in July and followed up with a circular in October in a bid to put an end to all speculative activities.

On July 23, the Union Budget announced hikes in securities transaction tax (STT), which was rolled out from October 1.

These raft of measures drove traders to unregulated platforms and encouraged illegal arrangements with brokers, who 'rent out' their prop account to traders for a fee or for a share of the profits.

Amid this scenario, dabba trading platforms began ramping up their marketing strategies to woo more F&O customers.