BSE, Angel One shares slide up to 8% after Sebi chief calls for longer equity derivative tenures

Shares of capital-market-linked firms BSE and Angel One came under pressure on Thursday, falling up to 8% after Securities and Exchange Board of India (Sebi) Chairman Tuhin Kanta Pandey flagged the need to extend the tenure of equity derivatives contracts, a move that could alter trading dynamics in one of the world’s busiest derivatives markets.

BSE Ltd shares closed 7.7% lower at Rs 2,330.10 on the NSE, while Angel One shares ended 6.4% lower at to Rs 2,546.10.

Speaking at the FICCI Annual Capital Market Conference in Mumbai, Pandey said, “There is a need to increase the tenure of equity derivatives.” He said that a consultation paper will be issued on extending the maturities of such contracts.

Pandey noted that a surge in derivatives trading, largely fueled by retail investors, has already led Sebi to limit the number of contract expiries and raise lot sizes to make trades more expensive.

Market risks in focus

India accounts for nearly 60% of global equity derivatives volumes, but retail traders have faced steep losses. A Sebi study showed retail investors lost Rs 52,400 crore in the year ended March 31, 2024, compared with gross profits of Rs 33,000 crore for proprietary traders and Rs 28,000 crore for foreign investors.

The regulator has recently tightened norms, including capping end-of-day exposure in options portfolios at Rs 1,500 crore. It is also weighing further restrictions on intraday index derivatives trading as part of efforts to contain systemic risks, people familiar with the matter told Reuters earlier this week.

Pandey also said Sebi would work with the corporate affairs ministry and stock exchanges to build a regulated platform for information about pre-IPO firms.

Also read | Sebi plans to raise tenure, maturity for equity derivatives: Tuhin Kanta Pandey

How Sebi's call for longer equity derivative tenures will impact capital market stocks and strategy

"Currently, we have a 3-month expiry, and now Sebi is planning to extend it further and this can reduce trading activity as the impact on option pricing will be high," said Kunal Kamble, Sr. Technical Research Analyst at Bonanza, adding that option writers, who usually benefit from time erosion, will face problems because with longer time spans the option premium will be higher.

Secondly, option buyers will be required to maintain higher margins, Kamble said, "for example, if today an ATM Nifty option requires ~₹10,000 margin, this can increase nearly threefold if expiry is extended. IV traders, who depend on HV and IVP, will also be affected as volatility will reduce with longer expiries."

Brokers will face issues as well, since a major portion of broking income comes from derivatives and they have already been impacted when weekly expiries were reduced from 6 to 2, said Kamble.

To trade in derivatives under this structure, a steady and patient approach may still work, but it will come at the cost of lower volatility and dominance of larger players, according to Kamble.

(Disclaimer: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of The Economic Times)