 |
|
The Securities and Exchange Board of India (SEBI) has initiated a crackdown on the excessive use of derivatives by retail investors, implementing a series of measures aimed at mitigating risks and promoting responsible trading. Interestingly, these regulations seem to be creating an unlikely winner in the stock exchange landscape: the Bombay Stock Exchange (BSE). While SEBI's circular was met with unease by investors in stock broking companies, BSE's shares experienced a significant surge, indicating a potential shift in market dynamics.
Among the seven proposed measures, the most impactful is the limitation of weekly options contracts to just one benchmark index per exchange. This move is expected to severely impact the National Stock Exchange of India (NSE) as it offers four weekly expiries. In contrast, BSE only offers two index option contracts – the Sensex and Bankex. With the new rules coming into effect, the trading activities currently concentrated on NSE's discontinued products could potentially spill over to BSE, giving it a competitive advantage.
Analysts at IIFL Securities believe that BSE could witness higher volume traction and faster market-share gains as a result of the reduced weekly contracts. They project a potential 7-9% impact on BSE's earnings per share (EPS) over the next three years due to the removal of the Bankex weekly contract. However, they also anticipate that the gains from the spillover trading activity could offset this impact and even lead to EPS upgrades.
Jefferies, another brokerage firm, expects derivatives to contribute significantly to BSE's revenues, reaching approximately 50% by FY27. This represents a substantial increase from the current 13% in FY24. The brokerage also points out that weekly premiums currently constitute around 65% of the overall industry premiums, suggesting that the elimination of certain contracts could significantly impact market volume.
SEBI's proposed measures, including the increase in minimum derivative contract values and heightened margin requirements, are likely to impact the participation of smaller retail investors. However, IIFL Securities believes that these measures could potentially lead to a greater decline in investor count than in trading volume. Overall, the brokerage estimates a 25-30% impact on NSE's FY26 earnings and a 15-18% impact on BSE's earnings.
Market analysts anticipate that exchanges and retail-focused brokers will be most affected by the changes, while clearing members catering to institutional players like high-frequency traders (HFTs) and foreign portfolio investors (FPIs) are expected to experience a less significant impact. The article provides specific examples of how different brokerage firms, including 5paise, Angel One, and Motilal Oswal, are expected to be impacted by SEBI's new regulations.
Source: iifl securities: Sebi's F&O de-addiction campaign throws up an unlikely winner