The steps are intended to raise the entry barrier for retail investors, whose losses have been mounting, as per a recent study by the watchdog.

Analysts have estimated that the curbs may bring down the volumes on the National Stock Exchange (NSE) by nearly one-third. In September, the average daily turnover (ADTV) for NSE’s cash market segment stood at Rs 394 trillion, while that of BSE was around Rs 144 trillion.

Besides the fresh derivatives curbs, futures trading volumes are also expected to be impacted due to the increase in securities transaction tax (STT), which came into effect from Tuesday.

Further, many expect the volumes to shift to the Gift City in Gujarat, where Gift Nifty contracts are traded on the NSE’s International Exchange.

“Limiting weekly expiries to a single index on NSE and BSE could encourage a shift in trading volumes towards GIFT City, which still offers a wider range of weekly options. From an FPI (foreign portfolio investor) perspective, this creates an attractive opportunity for those seeking flexibility in trading strategies,” said Rohit Agarwal, chief executive officer of the funds business, Dovetail Capital.

“While NSE remains the dominant player, averaging 10.8 billion equity derivatives contracts monthly in FY24, GIFT City, although growing, represents less than 1 per cent of NSE’s volume with around 2 million contracts traded monthly. However, the transition will largely depend on how well GIFT City can build its liquidity and market depth to support this shift,” added Agarwal.

As far as onshore trading is concerned, the impact of the new measures on BSE may be lower than NSE, given its relatively lower dependence on the number of index options expiring through the week—which now will be limited to one.

Index derivatives trading accounts for a large portion of the revenues for both brokers and stock exchanges.

Zerodha, the largest broker in terms of profitability, has estimated a decline of 30 to 50 per cent in revenue owing to the changes.

Stock brokers are planning to diversify their revenue streams to offset the hit on revenues.

NSE’s income from transaction charges stood at Rs 3,623 crore in the first quarter of FY25. The same for BSE was Rs 366 crore. A majority of this is contributed by the F&O segment and has surged on the back of heightened activity.

Three of the key measures by the market regulator will take effect from November 20, while others will be effective from February and April next year.

As per an earlier report by IIFL Securities on NSE published in late August, Sebi’s decisions could dent the exchange’s revenues by 20 to 25 per cent.

Global trade body Futures Industry Association (FIA) believes that while the intent of Sebi’s action is justified, the new measures could end up inflating the cost of trading.

“Liquidity providers could also face increased margin costs, leading to wider bid/ask spreads and creating market distortion. These higher spreads will ultimately be absorbed by retail traders, creating unintended additional costs for both retail and institutional investors,” the FIA said in its submissions to Sebi’s consultation paper floated in July on derivatives curbs.

Higher entry barriers, some believe, may lead to some retail participants taking disproportionately higher risks.

A Sebi expert group is expected to monitor the impact of the proposed changes and return to the drawing board if further follow-up action is warranted.

First Published: Oct 02 2024 | 7:43 PM IST