NSE retains options trading edge after SEBI’s F&O overhaul

The new rules as laid down by the Securities and Exchange Board of India (SEBI) will limit weekly expiry contracts to one per exchange.

With the new rules for the futures & options (F&O) segment in play, the average daily trading volumes for options contracts across indices and stocks have seen a significant decline.

Last week, the daily average turnover for Nifty Bank dropped nearly 33%, while Bankex experienced a drastic 98% decrease. In sharp contrast, however, the Nifty and Sensex contracts saw increases in their average daily turnover by 40% and 14%, respectively. Overall, NSE’s options turnover rose marginally, while BSE saw a slight decline.

For Nifty Bank, the average daily value traded (ADVT) declined to Rs 12,259 crore from Rs 18,250 crore in the previous week, while Bankex saw a sharp drop to Rs 41 crore compared to Rs 1,927 crore. In contrast, Nifty and Sensex recorded significant increases in ADVT, with Nifty rising 40% to Rs 41,301 crore from Rs 29,474 crore and Sensex increasing 14% to Rs 8,314 crore from Rs 7,301 crore. Overall options volumes showed a marginal increase on the NSE, rising to Rs 62,511 crore from Rs 59,615 crore, while the BSE saw a decline, with volumes dropping to Rs 8,355 crore from Rs 9,228 crore in the previous week.

According to Akshay Chinchalkar, Head of Research at Axis Securities, the decline can be attributed to several factors: a reduced number of instruments and expiration options, higher margins due to increased minimum contract values, and the market correction since September, which led to reduced investor commitment amidst heightened volatility.

Additionally, foreign investors trimming positions toward the year-end period and thinner volumes have contributed to this trend, he added.

Last week, India’s popular Bank Nifty weekly options contract ended, marking the close of an era that began in 2016 when millions of retail investors flocked to it. It was part of the overall regulatory action to curb excessive retail trading in the derivatives arena and enhance market stability.

The new rules as laid down by the Securities and Exchange Board of India (SEBI) will limit weekly expiry contracts to one per exchange.

“SEBI's six-point circular to counter excessive participation of retail in derivatives has come into play. Weekly expires have been now restricted to Nifty and Sensex. Traders have shifted their strategies as per this new regime to trade Nifty and Sensex and pulled out of Banknifty and Bankex,” said Shrey Jain, Founder & CEO, SAS Online, a discount broking firm.

In October, SEBI introduced six changes to index derivatives trading to curb excessive speculation and trader losses. Key measures include tripling contract size to Rs 15 lakh, raising margins, upfront premium collection, limiting weekly expiries to one benchmark per exchange, intraday position limit monitoring, and removing calendar spread treatment on expiry days.