Options turnover on NSE plunges to lowest this year
Decline reflects cumulative impact of measures aimed at cooling India’s once-frenetic derivatives market
Options turnover on India's leading stock exchange, the National Stock Exchange (NSE), dropped to its lowest level this year on a monthly expiry day, signaling the effects of stricter trading regulations and the implementation of a closing-auction system. Premium turnover on the NSE declined to approximately ₹67,000 crore ($7 billion) on Tuesday, marking the lowest since December according to exchange data.
The decline in stocks equities trading, where the exchange controls over 90 percent of the domestic market, also reached its lowest point since November. This downturn is attributed to a range of measures implemented to cool down India's previously volatile derivatives market, including reducing the number of weekly expiries, increasing contract sizes, and limiting bank funding to proprietary trading firms.
The reduction in options trading is concerning for the NSE as it prepares for what would be India's largest initial public offering (IPO). Options contributed about ₹10,000 crore in transaction charges during the fiscal year ending March, representing 60 percent of the exchange's revenue from operations according to the NSE's IPO filing.
Kranthi Bathini, an equity strategist at WealthMills Securities, views the decrease in options volumes as a short-term setback rather than a long-term issue. The introduction of the auction mechanism earlier this month, which determines closing prices for over 200 stocks between 3:15 p.m. and 3:35 p.m., has altered expiry-day strategies and caused significant stock movements during the process.
Institutional and retail traders have largely avoided the auction as the market adapts to the new system.
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