SEBI new F&O trading norms: Zerodha to review pricing after November 20, says CEO Nithin Kamath

Capital markets regulator Securities and Exchange Board of India (SEBI) has mandated a new framework for India's booming equity derivates market and announced sweeping changes to curb the rush in futures and options (F&O) trading. Post-SEBI's announcement of new F&O norms, Nithin Kamath, co-founder and CEO of Zerodha, announced that the leading online stock brokerage platform will review its pricing structure after November 20, 2024, based on the impact of new rules for index derivatives trading.

Taking to microblogging platform ‘X’ (formerly Twitter) X, Zerodha's Kamath said, “Here's the potential impact of only one weekly expiry of index derivatives per exchange and contract sizes going up by around 2.5 times.”

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“As things stand, assuming that those trading weekly don't move on to trading monthly, the impact will be ~60 per cent of overall F&O trades and ~30 per cent of our overall orders. I guess things will become much clearer from November 20th. We will then decide on our change in pricing structure, based on the impact on the business,” said Kamath in a post on ‘X’.

SEBI implemented six out of seven measures recommended by an expert panel to cool the exuberance in India's derivatives market. Market participants said the measures, which will be implemented in phases, could dent derivatives volumes by 20-30 per cent.

Out of the six, the ones that could impact volumes the most are the reduction in weekly expiries per exchange from five to just one, the increase in lot size to ₹15-20 lakh from ₹5-10 lakh, and the removal of the calendar spread benefit on expiry day. The first two will take effect on November 20, and the third on February 1, 2025.

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This means that weekly expiries are limited to one per exchange, and contract sizes are increased. As a result, the contract size for index F&O will rise from ₹5-10 lakh to ₹15-20 lakhs. From November 20, stock exchanges can offer weekly expiries for only one benchmark index. For example, the NSE can choose between Nifty 50 or Bank Nifty, but not both. All other indexes will move to monthly expiries.

Additionally, starting in February 2025, traders will lose margin benefits on calendar spreads for contracts expiring on expiry day, increasing margin requirements for many. SEBI has also introduced an Extreme Loss Margin (ELM) of two per cent on expiry day to cover risks due to heightened volatility.

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