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According to Prashant Tapase of Mehta Equities, the higher entry barrier of Rs 15 lakh minimum contract value will deter retail investors, potentially causing a 20% to 30% decrease in trading volume
The revised F&O rules also increase lot sizes: Nifty’s from 25 to 75 and Bank Nifty’s from 15 to 30. (Representative/Shutterstock)
The new rules implemented in the derivatives market this week signal a significant change. The weekly expiry for most indices will not be applicable anymore.
Previously, traders navigated expiries of various indices on different weekdays: Bankex on Monday, Fin Nifty on Tuesday, Bank Nifty on Wednesday, Nifty on Thursday, and Sensex on Friday. The new rules streamline this, with only two indices expiring weekly: Nifty and Sensex.
According to market experts, these changes will impact F&O market trading. Some anticipate a 10% to 30% volume drop, citing two primary reasons. First, algorithmic traders must adapt to the new rules. Second, the volatility previously associated with Bank Nifty’s weekly expiry will now concentrate at month’s end, increasing pressure on Nifty.
Nirav Karkera, Head of Research at Fisdom, said, “This week has seen significant change in terms of volume and volatility. With the implementation of the new rules, we expect volumes to drop this week and volatility may also reduce to a large extent.” Karkera anticipates a 15% to 20% volume decline.
Prashant Tapase of Mehta Equities highlighted the impact of this change on option volume. “The new F&O rules will also have a big impact on option volume. The minimum contract value of the index is now Rs 15 lakh, which is much higher than the earlier range of Rs 5-10 lakh.”
This higher entry barrier will deter retail investors, potentially causing a 20% to 30% volume decrease, Tapase said.
The revised F&O rules also increase lot sizes: Nifty’s from 25 to 75 and Bank Nifty’s from 15 to 30. This change presents an additional challenge for smaller investors.
Several other factors could contribute to sluggish trading this week. These include the Reserve Bank of India’s Monetary Policy Committee meeting, extended holidays in US markets during December, and the traditionally slower trading month of January.
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