Futures and Options volumes shrink after Sebi’s new guidelines kick in

Following the regulator’s announcement last week, FE has learned that smaller brokers are not allowing retail investors take fresh positions in F&O or even roll over earlier positions ahead of expiry.

By Urvashi Valecha & Malini Bhupta

The Securities and Exchange Board of India’s recent guidelines to curb risk in derivative markets have resulted in volumes halving almost in the futures and options (F&O) market. Against daily volumes of Rs 10-15 lakh crore, volumes in the F&O market have come down to between Rs 3-5 lakh crore this week. The cash market volumes have also been impacted, said brokerages, following the lockdown this week.

Last week, the capital markets regulator announced a slew of measures to curb volatility in the market. By reducing the position limits in equity and debt derivatives, Sebi has made it very hard for speculators. The regulator halved the market-wide position limits in F&O stocks, sought to raise margins for non-F&O stocks in a phased manner and capped institutional exposure to index futures at Rs 500 crore. Following the regulator’s announcement last week, FE has learned that smaller brokers are not allowing retail investors take fresh positions in F&O or even roll over earlier positions ahead of expiry.

Ambareesh Baliga, independent market expert, said that after Sebi introduced measures to curb volatility, it was natural for trading volumes in F&O segment to come down. This also indicates that currently the buyers are more long-term, which would bring stability to the market.

One of the reasons for the volumes coming down sharply is also because of the sharp rise in options premium.

Aamar Deo Singh, head-advisory, Angel Broking, said that as premiums have risen traders have turned cautious. “Premium for options contracts have shot up. The uncertainty in the markets has made people cautious. The swings in the market have been very sharp, which has made people turn cautious,” Singh said.

Typically, volumes fall or reduced number of trades under normal circumstances is not good but, under these extraordinary circumstances, lower volumes would help reduce volatility and provide the much- needed stability in the market. Ajit Mishra, VP-research, Religare Broking, said: “Market volumes tend to come down usually during uncertain circumstances, due to unwinding of positions by the participants, including the foreign investors. However, this isn’t likely to continue for a prolonged period of time and volumes would return once stability returns.”