India’s BSE to Retain Weekly Derivative Contracts
India’s BSE will keep its weekly derivative contracts linked to the Sensex after the country’s markets regulator introduced stricter rules for equity derivatives, according to sources familiar with the matter.
The Securities and Exchange Board of India has mandated exchanges to reduce the number of weekly options contracts available to investors to just one from November 20. This decision comes in response to a significant increase in retail investors trading options, which has been perceived as a risk to household finances.
A study conducted by SEBI revealed that individual traders incurred net losses amounting to 1.81 trillion rupees in futures and options over the three years leading up to March 2024, with only 7.2% managing to make a profit.
BSE currently offers two contracts tied to indices – BSE Sensex and BSE Bankex. Given the higher trading volumes associated with the Sensex, the decision was made to retain the weekly expiry on this more active contract.
Impact on BSE and Market Trends
After the announcement of SEBI’s new regulations, Jefferies revised its earnings per share estimate for BSE downwards by 10%, anticipating a focus on the volume impact of the continuing product (Sensex) following the discontinuation of the Bankex offering.
Shares of BSE initially dropped by 3% but rebounded to an 8.3% increase as the final rules from SEBI reduced expiry-day margins to 2%, lower than the initially proposed 8%.
IIFL Securities predicts a 20% decrease in BSE volumes, compared to a 30%-35% decline in the NSE volumes. NSE, the largest exchange in India, currently offers four weekly expiries linked to various indices such as Nifty, Bank Nifty, Fin Nifty, and Nifty Mid-cap.
Nifty and Bank Nifty are popular choices among traders, prompting NSE to gather feedback before determining which weekly expiry to keep. Bank Nifty is the primary contract for NSE, contributing 50% of option premium volumes.
In August, the notional turnover for NSE’s index options amounted to 7,768 trillion rupees, showcasing the significant influence of these derivatives in the Indian market.
Source : www.reuters.com