Sebi proposals on F&Os may dent NSE earnings by 25%: IIFL Securities

The proposed changes include limiting weekly options contracts to one index per exchange, higher margin requirements near expiry, and a higher entry point by increasing the contract size

The proposed curbs by Securities and Exchange Board of India (Sebi) on index derivatives may dent the earnings of the National Stock Exchange (NSE) by 20-25 per cent, according to an analysis by IIFL Securities.
 
The market regulator is mulling seven key changes in the framework governing futures and options (F&Os) of indices to curb speculative trading and protect retail investors.
 
While the industry participants have made their submissions on the proposals, they are to be taken in the next board meeting of Sebi scheduled in September-end.
 

These include limiting weekly options contracts to one index per exchange, higher margin requirements near expiry, and higher entry point by increasing the contract size.
 

 
“If implemented, these measures could impact NSE’s trading volumes by nearly one-third, resulting in a projected 20-25 per cent cut in FY26ii EPS,” IIFL Securities said in its report on Tuesday.
 
Brokerage house IIFL Securities estimates that NSE’s notional option turnover will be impacted by 15-50 per cent while the premium turnover will go down by 5-40 per cent.
 
“Despite these challenges, the stock is currently trading reasonably at 15x FY26ii EPS. Even after accounting for the anticipated earnings cut, it would still be at a 23-25x valuation, representing a 30-40% discount compared to listed peers. Clarity regarding the IPO could potentially narrow this valuation gap. However, until then, the stock is likely to consolidate given the prevailing regulatory uncertainties,” the brokerage firm said.

 
The report points that regulatory costs now account for 19 per cent of the revenues against 3 per cent in FY22.
 
Regulatory expenses stand at 45 per cent of the total expenses of the exchange followed by clearing and settlement costs at 20 per cent.