Share and Derivatives Trades Decline in November Amid F&O Curbs
Overview
November witnessed a significant decline in trading activity across shares and equity derivatives, driven by weak market sentiment and new regulatory measures introduced by the Securities and Exchange Board of India (SEBI). The recent curbs aim to limit speculative trading in the futures and options (F&O) segment, protecting retail investors but impacting trading volumes across exchanges.
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Key Factors Behind the Decline
1. Drop in Turnover
Options: Turnover in options, the most popular segment among retail traders, plunged by 16% to ₹333.4 lakh crore, marking the sharpest monthly drop in over four years.
Futures: Turnover fell by 8.3%, sliding to ₹1.71 lakh crore, the lowest since December 2023.
Equity Cash Segment: The combined average daily trading volume (ADTV) in the equity cash segment of the NSE and BSE dropped 6.23% to ₹1.07 lakh crore, a low not seen since March 2024.
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2. SEBI’s Regulatory Measures
SEBI’s mid-November F&O curbs included:
Restricting exchanges to a single weekly derivatives contract.
Increasing the minimum contract size for index derivatives from ₹5 lakh to ₹15 lakh.
These measures, intended to curb excessive speculation, have led to reduced participation in the derivatives market.
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3. Market Volatility and Downtrend
The broader market sentiment remained bearish throughout November. Since late September, the Nifty has dropped 7.3%, with midcap and smallcap indices also posting declines.
Nifty Midcap 100: Fell 5.6%.
Nifty Smallcap 100: Dropped 2.1%.
Expert Insights:
“Market corrections typically lead to an initial spike in volume, followed by subdued activity as traders await stability,” said Faisal Mohammed, VP, Trading Operations at Zerodha.
HDFC Securities’ MD, Dhiraj Relli, noted that SEBI’s framework combined with volatility has dampened volumes, a trend expected to persist.
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Changes in Lot Sizes and Weekly Contracts
The increase in contract sizes has further dampened derivatives trading:
Nifty Lot Size: Increased from 25 to 75 contracts.
Bank Nifty Lot Size: Raised from 15 to 30 contracts.
Sensex Lot Size: Doubled from 10 to 20 contracts.
Weekly contracts have also been scaled back, with NSE retaining them only for Nifty while discontinuing them for Bank Nifty and Nifty Financial Services.
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Retail Traders and SEBI’s Data
A SEBI study revealed alarming losses among retail F&O traders, with 11.3 million individuals incurring a collective net loss of ₹1.81 lakh crore between FY22 and FY24. These findings underscore the rationale for stricter norms to safeguard investors from high-risk trading.
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Future Outlook
Experts believe the full impact of SEBI’s measures will become more evident in December as traders adjust to the new framework. Despite the current lull, the long-term goal of these changes is to create a safer and more sustainable trading environment.
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