Market speculation dips as Sebi's restrictions come into effect
The average daily exchange turnover in derivatives, or F&O segment in the market, has halved since changed rules on enhanced margins and curbs on short-selling took effect
Mumbai: Steps taken by market regulator Securities and Exchange Board of India (Sebi) to curb volatility have succeeded in reducing speculative trades, according to data analysed by
Mint.
The average daily exchange turnover in derivatives, or futures & options (F&O) segment in the market, has halved since changed rules on enhanced margins and curbs on short-selling took effect.
The average daily exchange turnover in derivatives contracts hovered above 12 lakh on non-expiry days. This has come down to about 4-6 lakh on non-expiry days after the curbs were imposed. This indicates that despite extreme volatility in the broader indices, speculative trades have seen a marked dip.
Expiry day is the future date by when a derivative contract has to be fulfilled, either by taking delivery or rolling over the position.
On expiry days, before the new rules took effect, the exchange turnover was as high as 37 lakh. Post the curbs, the exchange turnover on expiry days peaked to only 14.5 lakhi
In fact, the number of derivative contracts during March decluned by 19%. This was not just due to the Sebi measures but also because of the extreme volatility which had caused losses to option sellers. Traders also opted for physical delivery, suggesting most of the trades were genuine.
The market regulator had on 20 March unveiled a series of measures to curb extreme volatility being witnessed in Indian markets. Sebi had prescribed enhanced margins for highly volatile stocks and reduced market-wide position limits for volatile scrips. It had also curbed short selling by ensuring that in positions above ₹500 crore short-selling had to be backed by actual stock.
“The reason for reduced F&O contracts is due to the Sebi curbs. Margins have became very high for volatile stocks. For instance, the margin requirement for Axis Bank, which is witnessing volatility in the range of 10-15%, went up by 25%. While F&O contracts have reduced, the cash market turnover has largely remained the same," said Prakash Gadgani, CEO, 5Paisa.Com, a zero-fee brokerage offering from broking firm IIFL Securities.
Speculation seems contained since 20 March but extreme movements of the broader indices have continued. Indian equities rallied on Tuesday, with the Sensex ending 2,476 points higher at 30,067, its biggest one-day gain in percentage terms in over 10 years. The broader Nifty surged nearly 9% to 8,792.
“Volatility is largely a market function and depends on global cues," said Nilesh Gokral, Chief Operating Officer, Angel Broking.
“But we have definitely seen a marked reduction in the F&O contracts and turnover that signals speculation is on the downturn. Cash market turnover has remained unchanged," he added.
Cash delivery against the trades also increased by about 2% in the five trading sessions after 20 March. On 23 March, the first trading session after Sebi curbs, cash delivery peaked to 54%, the highest in the month of March. The number of derivatives contracts traded in March stood at 39.98 crore versus 49.41 crore in February and 54.41 crore in January.
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