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The Securities and Exchange Board of India (Sebi) is implementing new regulations aimed at safeguarding retail traders from the risks associated with high-risk, high-reward financial instruments known as Futures and Options (F&O). These changes are expected to significantly impact the National Stock Exchange of India (NSE), potentially reducing its option premium turnover by as much as 40%, according to market estimates.
The most impactful change among Sebi's six new directives, set to take effect on November 20, is the restriction of weekly expiry to one index derivative product per exchange. Currently, NSE offers four such products – Nifty, Nifty Bank, Midcap Nifty, and Nifty Financial Services. Under the new rules, NSE will be required to choose only one of these products for weekly expiry. While monthly contracts can continue as usual, the reduction in weekly expiry options is expected to have a substantial effect on trading volume.
IIFL Securities predicts a 40% decline in NSE's option premium turnover due to these changes, while BSE's turnover could decrease by 20%. Jefferies estimates that the new rules will eliminate approximately 35% of the daily traded premiums in index options, a significant portion of the average Rs 68,000 crore ($8 billion) traded daily.
To mitigate the impact of the new regulations, BSE is expected to focus on Sensex weekly expiry while discontinuing Bankex. This strategic move aims to maintain volume in the remaining product. Although both NSE and BSE rely heavily on their equity option segments, contributing 50-55% of their total revenues, the impact on their FY26 earnings is anticipated to be different. IIFL estimates a 30% decline in NSE's earnings, while BSE's earnings are expected to be impacted by 10-12%.
However, BSE could benefit from the new regulations in the long run. With a projected increase in market share to 25% in Equity Options premium and assuming tariffs at par with NSE, the brokerage anticipates a 25-30% upgrade in BSE's FY26 earnings. This potential for higher growth could lead to premium valuations for BSE. As a result, IIFL maintains a positive outlook on both NSE and BSE stocks, viewing any price corrections as opportunities for investors to accumulate shares.
Source: Sebi crackdown on F&O mess: NSE option premium turnover may fall by 40%