When the stock market authority talks, investors pay attention — and occasionally become frantic. This is precisely what occurred when SEBI Chairman, Madhabi Puri Buch Pandey, recently remarked on prolonging the duration of equity derivatives contracts.
Her remark caused a stir on Dalal Street, resulting in a steep decline in the stocks of BSE and Angel One. Traders, brokers, and investors together are currently discussing the true implications of these comments for the future of India’s financial markets. Let’s examine it closely
What Did the SEBI Chairman State?
During the FICCI Annual Capital Market Conference, SEBI Chairperson Pandey highlighted the necessity to extend the duration of equity derivatives.
She noted that a consultation document will soon be released to collect opinions on the matter. The regulator seeks to extend the duration of contracts while simultaneously boosting cash market volumes.
At first glance, this might seem like a technical modification. However, in practice, it might greatly influence the trading behavior of brokers, exchanges, and retail investors in India
Why Is Tenure in Derivatives So Important?
Consider equity derivatives as insurance policies — they enable traders to mitigate risk or bet on price changes. In India, derivatives (particularly weekly options) have gained significant popularity due to their potential for fast profits, brief obligations, and minimal initial margins.
Now envision if those contracts unexpectedly expanded from 1 week to 1 month, or potentially more. That alters the whole trading mindset. It curtails speculative excitement but could also decrease daily trading volumes — a key source of income for exchanges and brokers
Market Response: BSE and Angel One Suffer Losses
The direct consequences of SEBI’s comments were reflected in stock valuations:
- BSE stocks fell by 7.1%, ending at ₹2,343.2.
- Angel One decreased by 6.2%, with a trading price of ₹2,553.
What causes such an extreme response? Both exchanges and discount brokers have generated a considerable part of their income from trading derivatives, especially short-term contracts
What the CEO of BSE Stated Previously
Notably, merely a week prior to SEBI’s announcement, BSE MD & CEO Sundararaman Ramamurthy had discussed rumors regarding the fate of weekly expirations.
During a dialogue with CNBC-TV18 on August 12, he stated:
- Regulatory policies in India are continuously changing.
- BSE would hold off on any action until SEBI provides its official position.
- Current data does not indicate that the trading volumes of options have reached their maximum.
- The exchange is concentrating on broadening revenue sources instead of merely enhancing margins.
His remarks indicated that exchanges were ready for regulatory shifts, yet SEBI’s recent announcement still surprised the market
To what extent do brokers rely on derivatives?
This is where it becomes intriguing. The Indian stockbroking sector now relies significantly on the derivatives market for its income.
- Dinesh Thakkar, Chairman of Angel One, disclosed that 45% of Angel One’s revenue originates from the Futures & Options (F&O) brokerage sector.
- Rajesh Baheti from Crosseas Capital Services took it a step further by declaring that:
- Approximately 85% of the income generated by discount brokers and exchanges is derived from derivatives.
- NSE might experience a 35-40% decline in revenues if short-duration contracts are modified.
- BSE could endure a more severe decrease of 50-60% in revenue.
- Full-service brokerages might still receive a revenue share of 10-15%.
Should these forecasts prove accurate, the Indian brokerage sector is facing a significant revenue overhaul
Reasons Behind SEBI’s Push for Extended Derivative Durations
So what’s prompting SEBI to shake things up? There are several reasons:
- Minimize undue speculation – Weekly expirations frequently promote gambling tendencies in retail traders who pursue rapid gains.
- Encourage long-term investment – By lengthening tenures, SEBI aims to steer traders towards more strategic and less speculative trading activities.
- Enhance cash markets – Derivatives presently dominate cash equity trading volumes. Lengthening the term might rebalance the activity.
- Conform to worldwide standards – In numerous developed markets, longer-duration contracts are standard practice, not extremely brief weekly expirations.
SEBI’s initiative seems focused on enhancing stability and maturity in the Indian stock market
The Domino Effect: Who Will Suffer the Most?
Let’s face it — not all stakeholders experience the same level of impact. Here’s the summary:
- Exchanges such as BSE and NSE – Direct impact due to a significant portion of their volumes originating from weekly contracts.
- Discount brokers (such as Zerodha, Angel One, Groww) – Significant reliance on high-frequency F&O transactions results in substantial revenue declines.
- Full-service brokers (such as ICICI Securities, Kotak Securities, HDFC Securities) – The effect is less significant but still apparent.
- Retail traders – Those who excel in weekly options may see their opportunities diminish, while long-term investors might appreciate the lower volatility
Might This Cause Market Fluctuations?
For the moment, yes. Each time SEBI adjusts regulations, markets usually respond excessively.
- Traders are alarmed, worried about losing liquidity and facing increased expenses.
- Broker and exchange stock prices plummet as investors brace for revenue impacts.
- However, with time, markets adapt to new circumstances.
Recall the implementation of the peak margin rule? At first, there was disorder. Sales decreased. Eventually, participants adjusted, and trading behavior stabilized. This may take a comparable path
Bigger Perspective: Is India’s Derivatives Market Excessively Hot?
Certain specialists contend that India’s derivatives market has grown excessively large for its own benefit. Here’s the reason:
- Daily options trading volume in India ranks among the highest in the world.
- Retail involvement is soaring, frequently with minimal awareness of risk.
- Retail traders in F&O face significant losses — according to SEBI data, 9 out of 10 retail traders incur losses in derivatives.
While brokers and exchanges applaud unprecedented volumes, regulators are rightly worried about the systemic risks posed by this gambling-like conduct
Investor Sentiment: Anxiety vs. Logic
The automatic decline in BSE and Angel One illustrates a sentiment fueled by fear. Should long-term investors actually be worried?
- If SEBI can create a more dependable derivatives environment, exchanges could restore investor confidence.
- Strategies for diversification, as suggested by BSE’s CEO, may help mitigate losses from F&O revenues over time.
- Angel One and comparable firms are currently broadening their reach into wealth management, mutual funds, and advisory services, decreasing their dependence on derivatives.
Although the immediate discomfort is evident, the long-term narrative of India’s financial market expansion is still valid
What Actions Should Retail Investors Take Now?
If you possess stocks such as BSE, Angel One, or even NSE (via unlisted shares), here’s the actionable guide:
- Avoid panic selling – Markets frequently overstate the effects of new regulations.
- Await SEBI’s consultation document – No decisions have been made yet. The real execution might be progressive.
- Concentrate on the basics – Exchanges and brokers will remain; they will evolve.
- Broaden your investment portfolio – Avoid relying solely on one sector that is greatly influenced by policies
The Path Forward
The months ahead will be vital. Once SEBI publishes its consultation document, we’ll have better insight on:
- How many derivative tenures could be lengthened?
- If weekly expiries will be entirely eliminated or partially kept.
- What other strategies will be implemented to offset the revenue effect?
Exchanges, brokers, and investors will be monitoring attentively. One thing is certain: a structural change is imminent in India’s capital market landscape
Read More: Suzlon Energy Stock Falls 5.34% Despite Strong Earnings – What’s Behind the Drop?
Final thoughts
The decline in BSE and Angel One stocks following the SEBI Chairman’s comments emphasizes the fragile reliance of India’s financial system on derivatives trading. Although brokers and exchanges confront the immediate threat of losing revenue, SEBI’s aim appears to be focused on fostering a healthier, more sustainable market.
Indeed, there might be short-term discomfort — however, if it aids in curbing speculative excesses and aligns India with international standards, this may turn out to be a hidden advantage for the long-term prospects of Indian capital markets.
The key question is: Will traders adjust to longer-duration contracts, or will SEBI’s action significantly alter the trading culture in India? Ultimately, only time will reveal
