F&O action: Sebi’s move to curb option volumes to have substantial impact, says NSE chief

The disappearance of trading volumes from the weekly Bank Nifty and other weekly options series will substantially decrease overall option index volumes, said Ashishkumar Chauhan, the managing director and chief executive of the National Stock Exchange of India Ltd.

Bank Nifty weekly options accounted for nearly half of NSE’s weekly options premium turnover in the first half of 2024-25 (April-September), per Mint’s analysis of NSE option premium data.

But following the Securities and Exchange Board of India’s mandate allowing only one weekly series to be offered from 20 November, NSE will offer only the Nifty series weekly, although Bank Nifty accounted for higher volumes.

Sebi’s measures were aimed at curbing the exuberance in derivatives trading because of the heavy losses incurred by individual investors.

The impact of the discontinuation of the weekly Bank Nifty series will be substantial, Chauhan said during a call with analysts on Tuesday, a day after the bourse released its September quarter results. He added that part of the volume could shift to monthly Bank Nifty options but that “some (of the volumes) will disappear”.

Also read | NSE cash volumes sink to six-month low ahead of Sebi’s F&O curbs

Asked whether NSE could change the dates for its option expiry, Chauhan said, “My understanding is that the Sebi framework is to bring down option volumes and the exchange doesn’t have the flexibility to do many things. Sebi approval is required.”

On plans for a public market listing of NSE, Chauhan said there was no visibility as yet on the exchange’s initial public offering of shares.

“As an exchange, any regulated entity should get a no objection certificate and then file the DRHP (draft red herring prospectus). We have not received the NoC from Sebi. Once the NoC is provided, the exchange will work on the DRHP. But currently we are waiting for the Sebi NoC,” Chauhan said.

As for the National Securities Depository Ltd’s public listing, Chauhan said Sebi approval for its DRHP was “on its way”.

NSE, which holds 24% of NSDL’s equity, would have to divest its stake to 15% through the IPO to meet Sebi regulations on shareholding in a market infrastructure institution.

Also read | F&O action: Can new Sebi rules tame wild bulls of the derivatives market?

Bank Nifty: a major contributor

Mint’s analysis of NSE option premium data shows that of the ₹54.61 trillion weekly options premium turnover in the first half of FY25, Bank Nifty weekly options’ share was the highest, at 47.5%, or ₹25.96 trillion. The Nifty share was 34.4%, or ₹18.81 trillion.

The two weekly series together accounted for 82% of the overall weekly premium turnover during April-September. The rest was contributed by Finnifty weekly options (11%) and Midcap Nifty weekly series (7%).

The total Bank Nifty index options’ premium turnover in the first half of FY25, including monthly and weekly options, was ₹35.17 trillion. Of this, the Bank Nifty weekly share was 74%, which underscores the importance of Bank Nifty weekly options to NSE’s overall index option volumes.

Sebi’s safeguards

Sebi recently introduced a series of measures to because of heavy losses suffered by individual traders dabbling in weekly options, among other equity derivatives products.

A Sebi study found that about 11.3 million individual traders had incurred a combined net loss of ₹1.81 trillion in futures and options during FY22-24. The gainers were proprietary traders and foreign portfolio investors.

Also read | Sebi’s crackdown seen cooling India’s options frenzy even as regulator’s guard rails go up

Three of Sebi’s measures to strengthen the index derivatives framework—increasing contract value to ₹15-20 lakh from ₹5-10 lakh; rationalising weekly expiry to one per exchange from multiple weekly expiries; and an increase in exposure margin by 2% on the day of expiry—will kick in from 20 November.

Upfront collection of option premium from buyers and removal of calendar spread benefit on expiry day will be effective from 1 February, and intraday monitoring of position limits from 1 April.