Trading activity in the stock market has been slowing down since June 2024, even before new rules from Sebi (Securities and Exchange Board of India) aimed at reducing speculation in futures and options (F&O) trading take effect. Market volatility and high stock prices are making traders cautious, leading to fewer large trades despite record highs in stock indices.
In September, the combined average daily trading volume (ADTV) for both BSE and NSE dropped 21%, down to ₹1.30 lakh crore from ₹1.65 lakh crore in June. Over the same period, major indices like Nifty, Nifty Midcap 150, and Nifty Smallcap 150 gained between 7% and 7.5%.
“Retail participation was strong in June, but it has steadily declined since as people worry about a market correction,” said Satish Menon, Executive Director of Geojit Financial Services. Many investors have taken profits and are now waiting for the market to dip before making their next move.
In the derivatives market, futures trading volumes on NSE fell by 20%, while options trading dropped nearly 30% in September compared to June. This decline is expected to continue, as Sebi has raised the minimum contract size for index derivatives from ₹5 lakh to ₹15 lakh, making it more expensive to trade. Sebi has also limited weekly index contracts to just one per exchange, aimed at reducing speculation.
“With the new Sebi rules for the F&O market, we expect trading volumes to drop even further once these changes take effect,” said Dhiraj Relli, Managing Director at HDFC Securities.
Sebi’s actions follow a study showing that 1.13 crore retail F&O traders lost a combined ₹1.81 lakh crore over the past three financial years (FY22-FY24). Ashish Chauhan, MD of NSE, stated that these regulatory changes could have a “very significant impact” on trading volumes. Nithin Kamath, founder of Zerodha, estimated that the new rules could reduce their revenue by 30% to 50%.
The F&O segment, especially options trading, has seen rapid growth in recent years, with retail traders flocking to it in hopes of making quick profits. The introduction of weekly options contracts also contributed to this surge in trading, prompting Sebi to introduce tighter controls to reduce risky speculation.
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