Index derivatives and options activity stabilized after regulatory interventions: ICRA
The rating agency ICRA in its latest report has highlighted that trading activity in index derivatives and options volume is showing signs of stabilisation after three consecutive months of decline triggered by regulatory interventions. ICRA pointed out that the stabilization in index derivatives and options volumes reflects strategic recalibrations by market participants. It added that while margin trading facility (MTF) exposures have retracted closer to Rs 71,000 crore from their December 2024 peak, given their strong correlation with market trends, a resurgence in investor confidence could drive the trajectory back towards the Rs 1 lakh crore mark.
While the phased implementation of regulatory measures was begun from November 2024, ICRA noted that, this led to a sharp contraction of trading activity in index options with the average daily premium turnover declining by 18 per cent during the period between December 2024 to March 2025 as compared to the April to November 2024 period, meanwhile the number of options contracts traded fell by 60 per cent during the same period. Moreover, order volumes, critical for F&O brokerage, were moderately impacted (down 25-35 per cent). However, despite this, the rating agency noted that trading activity remains above historical levels.
It has warned that overall activity remains highly sensitive to future regulatory developments as the adjustments in lot sizes and the rationalisation of weekly expiries have shifted trading towards longer-tenure contracts, notably reducing participation from smaller investors. It also highlighted that during the March 2025, the number of investors with a monthly premium turnover below Rs 10,000 on the NSE dropped by 49 per cent YoY, while those in the Rs 10,000 to Rs 1 lakh crore declined by 37 per cent. Meanwhile, the investor count with higher monthly premium turnovers was less impacted. Further, it added that the move to a single weekly index derivative per exchange has also diversified market participation and is expected to foster healthier competition.
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