Small investors in derivatives segment declined 49% after Sebi curbs: Icra

ICRA report shows Sebi's F&O regulations have led to a sharp decline in smaller investor participation, with premium turnover under ₹10,000 falling 49 per cent

The measures introduced by the Securities and Exchange Board of India (Sebi) to curb frenzy in the derivatives segment have reduced the participation from investors with smaller capital bases, according to a report by rating agency Icra.

 

As of March, the count of investors with a monthly premium turnover of less than ₹10,000 in the National Stock Exchange (NSE) declined by 49 per cent year-on-year (Y-o-Y) while those with a turnover of ₹10,000 to ₹1 lakh has fallen by 37 per cent, according to the report.

 

The markets regulator had revised lot sizes upwards and rationalisation of weekly expiries in its initial steps to bring the activity down in the futures and options (F&O) where over 90 per cent traders incur losses.

 

 

“Conversely, the investor count with higher monthly premium turnovers was relatively less impacted. The decline in investor count in lower turnover ranges led to a drop in the premium ADTO (average daily turnover), particularly for cohorts with monthly premium turnovers of less than ₹1 lakh,” noted Icra.

 

The rating agency adds that margin trading fund (MTF) exposures which had seen sustained growth in previous years, declined 18 per cent quarter-on-quarter — the impact of which was seen in the performance of securities broking companies.

 

According to Icra’s sample set of nine securities broking firms, net revenue fell by 19 per cent Y-o-Y and profitability (operating profit after tax (PAT) as a percentage of net revenue) slipped to 26 per cent, marking the lowest level in the past 12 quarters.

 

Last November, Sebi initiated six measures to curb excessive speculation in F&O. While index options volumes (in premium terms) fell 15 per cent Y-o-Y, they remain 11 per cent higher than two years ago, according to data shared by regulatory sources. Similarly, individual trader participation, though down 5 per cent Y-o-Y, has risen 34 per cent compared to 2022.

 

Icra’s report notes that trading activity appears to be stabilising in index derivatives and options volumes after three consecutive months of decline following regulatory interventions.

 

Sebi has also launched another survey on F&O trader profitability, with results expected by mid-June. According to sources, depending on the outcomes of the survey and the overall impact on the volumes, the market regulator may consider more measures.