Stricter F&O trading rules: NSE's loss likely to be GIFT City's gain

Stricter F&O rules could lead a shift in volumes, says NSE CEO

Stricter trading rules for the futures and options (F&O) segment could lead to a shift in volumes to the “offshore” GIFT City in Gujarat, a top exchange official said. 

“GIFT City may become the beneficiary of the trading volumes going down in the Indian jurisdiction if Sebi’s proposals are implemented,” said Ashishkumar Chauhan, managing director and chief executive officer (MD & CEO), NSE in the earnings call on Thursday. 

The market regulator has proposed seven key measures to curb retail participation in the derivatives segment. These include higher entry barriers and fewer weekly expiries of index derivatives.

Exchanges are bracing for an impact on their trading volume and revenues as the options segment in particular is the highest contributor to revenues. 

On the impact of profitability owing to the changes, Chauhan said it will have a “significant impact on the volumes”. 

At present, only Gift Nifty is traded in the equity derivatives in the IFSC on NSE’s International Exchange.

GIFT Nifty had clocked an all-time high monthly turnover nearing $100 billion in June. Gift Nifty migrated from the Singapore Exchange last year, and is the only index derivative traded in India for around 22 hours a day. 

According to the revenue share deal between SGX and NSE, Singapore keeps 75 per cent of the business it brings and passes on 25 per cent to NSE. 

For NSE, options accounted for 65 per cent of the transaction charges in the previous financial year while the same stood at 8 per cent for the futures segment. 

The cash equity market also accounted for 8 per cent of the transaction charges, according to data provided by NSE in the analyst call. 

 

BSE sees scope for increased revenues 

BSE, which has a lower market share in the F&O segment, but has seen a significant jump in the past year since the relaunch of its index derivatives Sensex and Bankex, said the regulatory changes may open up other opportunities. 

“While one school of thought may think that the number of contracts and transactions will come down, the other says that the premium traded will be very high so the regulatory charge and the clearing charge will go down and revenues will go up because the revenues are based on premium,” said Sundararaman Ramamurthy, MD & CEO, BSE. 

“Regulatory changes and their impact on the existing paradigm evoke a sense of concern at that time. But it also provides newer opportunities. BSE, since it is at the nascent stages of development of this market, will find it comparatively easier to adapt to the emerging paradigm, strategise and grow stronger,” added Ramamurthy in the analyst call on Wednesday.

While BSE does not have any product similar to Gift Nifty, experts suggest it may plan to explore opportunities through its international exchange India INX. 

Owing to a buoyant market, BSE’s revenue from transaction charges grew nearly six-fold to Rs 366.3 crore in the first quarter of this financial year on a year-on-year (Y-o-Y) basis while during the same period, NSE surged to Rs 3,623 crore — a 44 per cent jump from the corresponding period a year ago.  

However, there are concerns in the market that many traders may look to shift to dabba trading or other avenues of speculative trading due to stricter trading rules coupled with an increase in capital market-related taxes.