Exchanges, retail brokers to be affected most by proposed SEBI curbs on F&O trading

The proposed measures by SEBI include increasing contract sizes by up to four times, collecting options premium upfront and reducing the number of weekly contracts.

The measures proposed by market regulator SEBI to curb speculation by retail traders in the F&O segment will have varying effects on market intermediaries, according to analysts tracking the sector.

The consultation paper issued by SEBI on Tuesday proposes limiting weekly options contracts to one index per exchange, increase in minimum lot size, and collection of premium amount upfront, among others.

According to foreign broking firm Jefferies, the move to limit the number of weekly expiries, if implemented, “will remove 12 (of 18) weekly option contracts and impact approximately 35 percent of industry premium”.

Stock exchanges and retail-focused brokers are likely to be the most affected, while institutional players may absorb the impact, Jefferies said in its report.

“We see exchanges and retail-focused brokers being most affected by the proposed changes. Clearing members like Nuvama (Asset Services business) cater to institutional players (HFTs / FPIs), who are less impacted but may see some second-order effects,” the report stated.

Discount brokers

The worst hit are likely to be retail-focused discount brokers like Zerodha, Angel One, and the stock exchanges.

Traditional brokers like Motilal Oswal, IIFL, and ICICI Securities will also be affected by the introduction of these measures, but not to the same extent, according to IIFL Securities.

“Within the value chain, discount brokers are likely to be more impacted than traditional full-service brokers due to their dependence on retail investors” the IIFL report said.

Among stock exchanges, NSE is likely to be hit harder, the IIFL report stated, as options account for approximately 60 percent of its revenues (FY25 estimates), while for BSE it is around 40 percent.

"We estimate a 25-30% impact on NSE's FY26 (estimated) earnings and 15-18% for BSE. We don’t see any impact on MCX from these regulations," said IIFL Securities.

For BSE, Jefferies believes that the removal of the Bankex weekly contract could impact its EPS by 7-9% over FY25-27E.

But Jefferies has a different take on the development. “In our scenario analysis, gains from the spillover of trading activity from discontinued products can offset the EPS impact and, in the event of a moderate industry-wide impact of SEBI measures, can even drive EPS upgrades,” they stated .

SEBI's consultation paper, released on July 30, noted that approximately 9.2 million unique individuals and proprietorship firms incurred a cumulative loss of Rs 517 billion in FY24, with only around 15% of traders (approximately 1.4 million) making net profits. In contrast, larger non-individual players like HFTs, algo-traders, and FPIs generally made offsetting profits.

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