Index choices buying and selling swells to document excessive in Oct amid heightened uncertainty

The bounce in participation comes weeks forward of regulatory restrictions to curb retail frenzy in weekly index choices buying and selling.

October’s heightened volatility led to higher participation, with the variety of index choices traded on the NSE hitting a document excessive of 12.74 billion contracts. The rising market uncertainty was mirrored by worry gauge India VIX, which rose by 71.5% from a low of 9.47 to a excessive of 16.24 in the course of the month.

The Nifty fell 6% in October to 24,205.35 attributable to overseas traders’ document promoting of over ₹1.13 trillion amid near-flat September quarter outcomes, constructing tensions between Israel and Iran, and uncertainty over the winner of the US presidential race then.

Because the markets turned risky, falling from a document excessive of 26,277.35 on 27 September, participation elevated in indices such because the Financial institution Nifty and the Nifty, the 2 hottest index choices contracts amongst market constituents, surged, in accordance with market traders.

“Extra trades are inclined to occur when markets flip risky,” mentioned the pinnacle of a giant low cost dealer. “We consider, although, the Sebi (Securities and Trade Board of India) restrictions, which kick in on 20 November, will trim the volumes by round 15-20% even because the volatility spills over from the final month to this one.”

Unbiased market analyst Ambareesh Baliga agreed. “At occasions when markets flip risky, buying and selling will increase. With Donald Trump within the saddle, information flows will give rise to extra volatility. Nonetheless, small members will not be capable of commerce as a lot as they might have appreciated attributable to regulatory curbs on derivatives buying and selling,” Baliga defined.

Trump desires to maintain rates of interest low and lower company and private tax charges to spice up spending whereas elevating tariffs on imports from China and different markets. This might stoke inflation in America and heighten bond yields, particularly as the federal government borrows extra to fund its expenditures. In such a state of affairs, preserving coverage charges decrease can be counterproductive, in accordance with market analysts.

VIX at present trades at 14.47, and the Nifty has slipped one-fifth of a share level in November to 24,148.20. VIX tends to chill off after an impending occasion, just like the US elections, performs out.

In index choices, primarily based on premium turnover, the NSE in October had a market share of 87.3% ( ₹62,156 crore common each day turnover), with BSE holding the remainder in the course of the month.

Sebi curbs

Sebi’s restrictions on choices buying and selling embody growing the contract dimension of indices just like the Nifty by 3 times to ₹15-20 lakh, reducing the variety of weekly index possibility expiries to only one per alternate from 5 earlier, and growing the acute loss margin by 2% on the expiry day of choices, which is able to take impact from 20 November. Analysts estimate that this can take the whole margin to commerce to 14% from 12% earlier on the expiry day, which occurs to be Thursday for weekly and month-to-month Nifty contracts.

The market regulator introduced six measures in a staggered kind on 1 October after a number of Sebi research discovered that 9 out of 10 particular person merchants misplaced in futures and choices buying and selling and that loss makers continued dabbling regardless of struggling heavy losses.

The three most necessary ones might be efficient from 20 November, whereas two others—upfront assortment of possibility premium from consumers and the removing of calendar unfold advantages on expiry day—might be applied from 1 February, and intraday monitoring of place limits will take impact from 1 April 2025.