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09-08-2024
Bureau Report
NEW DELHI/ BENGALURU: India’s National Stock Exchange (NSE) said on Wednesday that its volume of futures contracts doubled in the first quarter, while options grew 33%, amid a surge in derivatives trading in the country.
Average daily traded volumes for equity futures doubled to 2.09 trillion rupees ($24.90 billion) for the quarter ended June 30, while that for the equity options grew 33% to 719.57 billion rupees.
The rise in volumes comes amid a surge in derivates trading in the country, especially among retail investors, sparking concerns about broader financial stability risks and depletion of household savings.
Last month, the country’s markets regulator proposed a series of measures to curb a trading frenzy in options, including raising the minimum trading amount by over three times, reducing the number of contracts expiring each week and hiking trading margins.
The NSE paid a securities transaction tax (STT) of 120.54 billion rupees during the quarter. STT is a direct tax charged on every sale and purchase of securities that are listed on Indian stock exchanges.
The NSE’s consolidated operating revenue for the quarter grew 51% year-on-year, while its profit rose 39%.
India’s equity market hit multiple record highs in the April to June quarter on strong economic outlook and foreign fund inflows, boosting its stock exchanges.
However, India’s markets regulator on Tuesday proposed a series of measures to curb a trading frenzy in options, including raising the minimum trading amount by over three times, reducing the number of contracts expiring each week and hiking trading margins.
The steps, which follow an increase in tax on derivative transactions last week, are intended to curb the participation of retail investors in the options market and will have a significant impact on volumes, traders said.
Authorities have been flagging risks from speculative trading by retail investors, who have been funneling savings into India’s booming options market.
The monthly notional value of derivatives traded hit a global high of 9,504 trillion rupees in May, data showed. The share of retail investors in derivative trading volumes has risen to 41% so far in 2024 from 2% in 2018.
Until last year, the regulator was approaching the growing interest in options trading as an issue related to investor protection, but it has now became a macro issue, Madhabi Puri Buch, chairperson, Securities and Exchange Board of India (SEBI) said.
Large positions in index options and “hyperactive and abnormal trading” activity close to day of expiry have implications for market stability, the markets regulator said.
SEBI has proposed to raise the minimum trading size of new options to 1.5 million rupees to 2 million rupees ($18,000-$24,000) from 500,000 rupees. It seeks to raise the size to 3 million rupees after six months.
It has proposed that exchanges offer options only on a single benchmark index each week. India’s two leading exchanges currently offer multiple option contracts each week, which means that an options contract is expiring nearly every day.
The markets regulator has also proposed a hike in margins on near-term expiries and asked brokerages to collect premiums up front.
The regulator has invited feedback on the proposals by Aug. 20 before issuing final rules.
