Broking stocks slipped by up to 3% after the Securities and Exchange Board of India (SEBI) introduced new measures to tighten the index derivative framework, set to take effect on November 20. The changes are aimed at boosting market stability and protecting investors, particularly in the highly speculative futures and options (F&O) segment.
Notable broking firms like Nuvama Wealth Management and others saw their share prices dip, with Nuvama leading the decline at 3%. This move comes as SEBI addresses volatility in the share market investment space, particularly around derivative expiry days.
Key changes to the F&O framework
SEBI’s new regulations will limit each exchange to providing derivatives contracts for only one of its benchmark indices with weekly expiries. This shift is expected to reduce excessive speculation, particularly on expiry days. SEBI’s move comes after consultations with market participants and takes into account the increasing speculative nature of index derivatives trading.
Additionally, the minimum trading amount for derivatives will increase significantly. Previously set at ₹5-10 lakh, the minimum value will now be ₹15 lakh, with the potential to rise between ₹15 lakh and ₹20 lakh over time. SEBI will phase in these changes over the next three to six months, giving participants time to adjust to the new framework.
Market reaction and impact
The immediate reaction in the market saw a drop in the stocks of several broking firms. Motilal Oswal Financial Services shares dropped by 1.5%, while IIFL Securities saw a 1% dip. Shares of JM Financial, Choice International, Dhani Services, Dolat Algotech, and Aditya Birla Money were also trading in the red. Discount brokers are expected to feel the most impact from the changes, as noted by Jefferies, an international brokerage firm.
Jefferies also pointed out that the new regulations align with SEBI’s previous discussion paper and could affect around 35% of Indian premiums. However, the phased implementation could help minimise immediate disruption to F&O volumes.
Angel One’s notable rise
In contrast to the general downturn, Angel One’s shares surged over 7%, as Investec maintained a 'buy' rating on the stock. Investec raised its target price for Angel One to ₹3,000 per share, buoyed by the fact that SEBI’s final regulations were less strict than the original draft. The new rules, while stricter, were not as harsh as initially feared, leading Investec to revise its forecast for F&O volume declines from 30% to 25%.
Investec also raised its earnings per share (EPS) estimate for Angel One to ₹149 for FY26 and increased the stock’s target multiple to 20 times, further boosting market sentiment for the firm.
Outlook for broking firms
The changes introduced by SEBI are likely to have a long-term impact on broking firms' operations and the wider share market investment landscape. By tightening controls on index derivatives, SEBI aims to reduce market volatility and speculative trading, particularly around expiry days. While some firms may face short-term losses, others, like Angel One, are positioned to benefit from the more lenient final regulations.
The phased rollout of these changes will allow broking firms and market participants to gradually adapt to the new framework, with the full effects expected to become clear over the next few months. As the market adjusts, participant behaviour, particularly in the discount broking sector, will be closely watched to gauge the overall impact of SEBI’s measures.
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