Brokerages stock fall up to 8% after Sebi curbs F&O rules; details here

Among individual stocks, 5Paisa declined 7.65 per cent, followed by IIFL Securities (down 4.76 per cent), Geojit Financial Services (down 3.32 per cent) and MOFSL (down 3.15 per cent).

Brokerage firms in focus: Brokerage firms such as IIFL Securities, 5Paisa, and Geojit Financial Services dropped up to 8 per cent,  on Thursday, October 3, 2024, following the Securities and Exchange Board of India’s (Sebi) announcement of a new six-step plan to tighten futures and options (F&O) regulations.

Among individual stocks, 5Paisa declined 7.65 per cent, followed by IIFL Securities (down 4.76 per cent), Geojit Financial Services (down 3.32 per cent) and Motilal Oswal Financial Services (down 3.15 per cent).

Angel One dropped up to 5.83 per cent initially. However, the scrip recovered, and rose as much as 7.46 per cent to reach an intraday high of Rs 2,794.25 per share.

“Angel could see transitionary hit to earnings as the regulations are implemented and the company gauges the impact before making corrective actions. However, we believe the company is in a transformational phase wherein share of financial products distribution (loans and fixed income), wealth management and AMC, will start contributing meaningfully over the next couple of years. We retain our ‘Buy’ rating on the stock,” Motilal Oswal said in a note.

Here’s what led to such a mixed reaction from the brokerages:

The mixed reactions among brokerages stem from Sebi's recent announcement, which detailed major changes aimed at curbing excessive speculation and addressing concerns about retail traders' mounting losses. 

Key measures include increasing the minimum contract size from Rs 5 lakh to Rs 15 lakh, raising margin requirements, and requiring upfront collection of option premiums from buyers. 

Additionally, the new rules will limit weekly expirations to one benchmark per exchange, enhance intraday monitoring of position limits, and eliminate calendar spread treatment on expiry days. READ MORE

A Sebi study indicated that over 93 per cent of retail traders suffered losses totaling Rs 1.8 trillion in the F&O segment over the last three financial years. This has raised alarms among financial regulators, including the Reserve Bank of India (RBI) and the chief economic advisor, due to the average daily turnover in this speculative segment exceeding Rs 500 trillion.

In response to these concerns, Sebi released a consultation paper in July outlining the proposed changes, which were then reviewed by an expert working group and the secondary market advisory committee. 

The new measures, designed to raise barriers to entry for retail participants, will be implemented in phases, with three of the changes set to take effect on November 20.