Trading volumes not back to their peak, green shoots emerging: Gaurav Seth

Sebi's tighter derivative norms initially hit F&O trading volumes but confidence, new strategies and improved market sentiment are now aiding a gradual recovery, says Seth

The Securities and Exchange Board of India’s (Sebi’s) tightening of the derivatives framework has dented trading volumes, but the industry is gradually adapting to the new regime, Gaurav Seth, chief executive officer (CEO) and managing director (MD) of 5paisa Capital, told Samie Modak, in an interview in Mumbai. Edited excerpts: 

There has been a decline in trading volumes compared to last year. What are the key reasons behind this moderation? 

Market regulator Sebi’s October moves — a part of the broader push to curb speculation and strengthen stability in the equity derivatives segment — is one of the biggest factors behind the decline. Changes in lot size, extreme loss margin requirement on expiry, and removal of calendar spread margin benefit also adversely affected volumes. All this coupled with reduction of indices weekly expiries led to an over 30 per cent decline in volumes. Sebi’s report on retail losses also raised awareness among traders, leading to a reduction in speculative and risky trades. Markets, too, have moderated over these months leading to contraction in trader interest. 

Since February 2025, both cash and futures and options (F&O) turnovers have picked up. Do you think the market has bottomed out? What’s driving the recent recovery? 

While the average daily turnover is yet to bounce back to historical highs, there are some definite green shoots. Clients have also developed newer strategies to tackle the volatility and are now participating more proactively. Optimism about the Indian economy continues to be strong and goods and services tax (GST) simplification has given people much to cheer about. The Sensex and the Nifty are near their all-time highs, which also bodes well for the industry. This is reflected in continued buying by domestic institutional investors. 

There’s been growing concern about mounting losses among retail investors. In your view, should the response be tighter regulations or greater investor education? 

India has one of the best regulatory frameworks in the world, and the regulator has been proactive in highlighting market risks to retail traders and investors. Greater investor education is required to protect retail participants — learning about financial products and their risks as well as the risk appetite of the investor are essential. While this is not easy to do, I believe the most effective way is to understand your own suitability to trade in the markets.

 

The largest broking firm has recently gone public. How do you see this development impacting the overall broking ecosystem? 

Groww’s initial public offering (IPO) was a significant moment for Indian brokers. The fact that it was backed by both retail and smart money reiterated the strength of the business model. It proved that digital platforms have come of age and that is a confidence booster for the entire industry. This will encourage more companies to address different investing and broking use cases and the sector will attract more capital.

 

Sebi has formally allowed algo trading for retail investors. How significant is this development? 

The new retail algo trading framework and guidelines from Sebi is a progressive move — it makes algo trading accessible to retail in a transparent and safe manner. Brokers carry higher responsibility for providing regulated access to algos on their platforms. It’s a net positive development for the algo ecosystem as the rules and operating principles have been clearly defined by the regulator. 

How are these behavioural and regulatory dynamics affecting the business models and profitability of mid- and small-sized brokers like 5paisa?

 

The business model for 5paisa fundamentally remains the same — which is to provide quality access to financial markets at a low price point for millions of customers. We are responding to the changes by driving more efficiencies via technology and diversifying our offerings where it makes sense. 

What steps are brokers, including 5paisa, taking to sustain or boost revenue growth amid this tough environment?

 

Our customers have both trading and investing needs, and we are focussing on providing products such as margin trading facility, IPO access, mutual funds and exchange-traded funds. We plan to launch additional offerings.

 

Do you expect trading costs across the industry to rise, and how might that affect competitiveness and margins?

 

We don’t expect trading costs to rise across the industry. 

How is the margin trading facility (MTF) segment evolving for you? Can it emerge as a meaningful revenue driver? 

MTF is scaling well for us, 5paisa customers now have higher limits up to Rs 3 crore of MTF funding. We continue to improve our MTF offering and believe this can be a meaningful revenue driver in the future.

 

When it comes to customer acquisition, what matters most today—cost efficiency, technology, or customer experience? 

Cost efficiency, technology, and customer experience are all integral to any successful broking company and are equally important. But at 5paisa, we believe technology to be the first among equals. Excellence in tech is at the centre of the company’s future plans and we have some of the best tech-first products in the entire broking space.