The CEO of Zerodha, Nithin Kamath, emphasised the possible effects of SEBI’s suggestion plan to safeguard retail F&O investors and enhance market stability in a social media post. One of the proposals is to reduce expiries to once a week. In an effort to reduce retail involvement in speculative index derivatives, SEBI has developed a six-step strategy that might result in a significant decline in volumes of up to 30–40 per cent.
This is the possible result of contract sizes increasing by about 2.5 times and index derivatives having just one weekly expiry per exchange. As things stand, the effect will be 30% of our total orders and 60% of all F&O transactions, assuming that those trading weekly don’t switch to trading monthly, stated Kamath.
The extremely speculative nature of trading index derivatives, especially on contract expiration day, has caused the market regulator to implement these rules. Restricting weekly expiry to one per exchange and raising the contract size from Rs 5-10 lakh to Rs 15 lakh have the largest effects on volumes, respectively.
Beginning on November 20, the new standards for derivative trading will be implemented gradually. On that day, index derivative contracts will be introduced with weekly expiries, larger contract sizes, and increased tail risk coverage by the imposition of an additional extreme loss margin (ELM).
“I suppose starting on November 20th, everything will become considerably apparent. Based on the effect on the business, we will then determine whether to alter our pricing structure,” Kamath continued. The new regulations will also eliminate the calendar spread treatment on expiration days, provide intraday monitoring of position limits, and restrict weekly expiries to one benchmark per exchange.
More than nine out of ten individual traders in the equities futures and options (F&O) segment continue to suffer large losses, according to a recent survey done by capital markets regulator SEBI. This research builds upon a January 2023 SEBI report that revealed 89 per cent of individual equities F&O traders had a loss in FY22.
The research stated that over the three years from FY22 to FY24, “93 per cent of over 1 crore individual F&O traders incurred losses of around Rs 2 lakh per trader.” The report further stated that over the three years between FY22 and FY24, the combined losses of individual merchants topped Rs 1.8 lakh billion.
The study’s objective was to analyse the profit and loss patterns for individual traders in F&O over the course of three years, from FY22 to FY24, as well as for all investor categories in F&O during the single year of FY24, given the rise in the participation of individual investors in equity and equity derivatives markets.
The current study was conducted to analyse profit and loss patterns for individual traders in F&O during the three years FY22 to FY24, and for all the categories of investors in F&O during the single year FY24, due to the increased participation of individual investors in the equity and equity derivatives markets, it continued.
The survey also revealed that the top 3.5% of dealers, or around 4 lakh merchants, had average losses of Rs 28 lakh per during the same time period, including transaction charges. And, just 1 per cent of individual dealers managed to make profits surpassing Rs 1 lakh, after adjusting for transaction expenses.
