Exchanges likely to see margin expansion due to new F&O measures: Jefferies Report

Jefferies has released an interesting analysis about how SEBI's new futures and options regulations are reshaping India's stock market landscape. The report highlights a dramatic 70% reduction in option trading volumes, yet surprisingly, option premiums have only dropped by less than 10%. Stock exchanges are potentially looking at significant margin expansions of 5-10 percentage points due to these regulatory changes. The financial ecosystem seems to be adapting, with wealth managers and asset management companies maintaining optimistic growth projections.

"Exchanges can see margin expansion from impact of new F&O measures" - Jefferies Report

by ANI January 14, 2025 131 views

New Delhi, January 14: Stock exchanges in India are likely to experience margin expansion as a result of the new futures and options (F&O) measures implemented by the Securities and Exchange Board of India (SEBI), according to an analysis by Jefferies.

Key Points

1. SEBI's F&O measures trigger 70% decline in option trading volumes

2. Option premiums show resilience with less than 10% drop

3. Exchanges expect 5-10 percentage point margin improvements

New Delhi [India], January 14 (ANI): Stock exchanges in India are likely to experience margin expansion as a result of the new futures and options (F&O) measures implemented by the Securities and Exchange Board of India (SEBI), according to an analysis by Jefferies.

While the measures have significantly impacted trading volumes in the options segment, the effect on premiums has been less pronounced, indicating a shift in trading behaviour.

The report highlighted that SEBI's new F&O measures have led to a decline of approximately 70 per cent in option volumes as of the second week of January 2025.

"Exchanges can see margin expansion from impact of new F&O measures: SEBI's new F&O measures has impacted option volumes by approx. 70 per cent (2nd week of Jan'25)" said the report.

However, option premiums have dropped by less than 10 per cent, which is better than Jefferies' earlier estimate of a 25 per cent decline. This resilience in premiums is attributed to traders and hedgers transitioning to contracts with larger ticket sizes and longer durations closer to expiry.

Jefferies report noted that exchanges are benefiting from relatively stable top line and substantial margin improvements, with gains of around 5 to 10 percentage points. These gains are supported by the improved quality of premiums.

The report also upgraded BSE to "Hold" and advised keeping an eye on the sustainability of these elevated margins for the industry. Furthermore, the report emphasized the need to monitor additional regulatory directions, particularly regarding clearing corporations and the Settlement Guarantee Fund (SGF).

In the broader financial ecosystem, the report also stated that the wealth managers are expected to maintain their long-term growth trajectory. Factors such as geographic expansion and the increasing financialization of assets are likely to drive strong inflows.

The asset management companies (AMCs) are also benefiting from sustained retail participation, which continues to support robust net inflows.

It also highlighted that sustained buoyancy in capital markets could keep net inflows above normalized levels, further boosting transaction-based revenue (TBR) income for wealth managers.

Additionally, new initiatives in high-net-worth individual (HNI) segments and global markets could begin contributing positively to net inflows, strengthening the industry's growth prospects.