SEBI's Crackdown on Index Derivatives Hits Brokerage Stocks as New Trading Limits Loom

Following SEBI's announcement of new measures to tighten index derivatives, which are projected to affect about 35 % of premiums and move the focus to participant conduct following implementation, shares of brokerage businesses experienced a decline in value.

To lessen speculative customer involvement in the futures and options (F&O) market, which might have a detrimental effect on stock exchange and brokerage company profits, SEBI has put in place a number of safeguards.

After market regulator Sebi announced a plethora of steps to tighten the index derivative framework to safeguard investors and maintain market stability—including limiting expiries on a weekly basis—shares of numerous brokerage businesses experienced a drop of up to 3 %.

According to Jefferies, the recent SEBI circular corresponds generally with the preceding discussion paper and effects about 35 % of Indian premiums. The multinational brokerage stated that a calibrated tightening of the market is anticipated as a result of the staggered deployment over the next three to six months.

The plan has undergone notable modifications, one of which being a reduction in expiry day margins, with a ceiling of 2 %. After installation, participant behavior will become the main emphasis going forward. Discount brokers and exchanges such as BSE are anticipated to be the most impacted, according to Jefferies' analysis of SEBI's circular.
Each exchange will now be able to offer derivatives contracts with a weekly expiry date for just one of its benchmark indices, under the new SEBI regulations.

The extremely speculative nature of trading index derivatives, especially on contract expiration day, spurred the regulator to implement these safeguards.

When derivatives are first introduced to the market, SEBI has also raised the minimum trading amount from the current ₹5–10 lakhs to ₹15 lakh. After that, it will be increased to a maximum of ₹20 lakh.

The regulators said in its circular that "the lot size shall be fixed in a manner that the contract value of the derivative on the day of review is within ₹15 lakhs to ₹20 lakhs." Beginning on November 20, the new standards for derivative trading will be implemented gradually.

IIFL Securities was down more than 1 %, and the shares of Motilal Oswal Financial Services declined by 1.5 %. JM Financial's shares were likewise losing value.

Nuvama Wealth Management had a 3 % decline, leading the losses. Additionally, experiencing losses in trade were shares of Aditya Birla Money, Share India, Dhani Services, Dolat Algotech, 5paisa Capital, and Choice International.

To Summarize

Following SEBI's announcement of new measures to tighten index derivatives, shares of brokerage firms dropped as much as 3%. The changes, which impact around 35% of Indian premiums, include reducing expiry day margins and limiting weekly derivative expiries to one index per exchange. These measures are aimed at curbing speculative trading in the futures and options (F&O) market, increasing the minimum trading amount from ₹5-10 lakhs to ₹15-20 lakhs. Brokers such as Nuvama Wealth Management, Motilal Oswal, and IIFL Securities saw their stocks fall following the announcement. The rules will be implemented gradually from November 20.