Zerodha CEO and founder Nithin Kamath noted in a recent blog post that the year 2024 was a strong one for the brokerage industry, but it appears that the peak has passed. He pointed out a significant decrease in the F&O segment, even though SEBI regulations from 2024 have not been fully enforced yet.
Kamath highlighted a 20-30% decrease in derivative segment activity in his review of the year 2024. He mentioned that despite the introduction of F&O regulations by the market regulator in 2024, their full impact is yet to be realised. The implications of these measures are expected to become more apparent in the coming year.
"Looking back, 2024 was probably the best year for the brokerage industry, and it's starting to look like the best is behind us, at least for the foreseeable future. In terms of options turnover, we are back to 2022–23 levels. This is even before the impact of the increased lot sizes, which take effect in January 2025," Kamath noted.
According to a blog post shared by Kamath, there has been a 20-30% decrease in activity in the derivatives segments on exchanges and among brokers. The post by Zerodha mentioned that despite the futures & options (F&O) regulations introduced by the market regulator Sebi in 2024 not being fully implemented, the complete impact of these measures is expected to be felt this year.
"Given all these measures, there’s been a 20-30% drop in F&O activity on the exchanges and across the brokers from the time these regulations kicked in. Most of these measures haven’t even been fully implemented, and so, the fullest extent of these measures will be felt next year. Assuming that markets remain sideways, it’s fair to assume that F&O trading will dip even further," the blog post read.
According to the post, the cooling trend that was observed in the equity segment seems to be extending beyond just the F&O segment. The total equity turnover has reverted to levels seen around December 2023/January 2024.
Kamath mentioned that looking back at the brokerage industry in 2024, it was probably the most successful year, but it appears that the peak has passed, at least for the near future. Options turnover has returned to levels last seen in 2022–23, even before factoring in the impact of increased lot sizes coming into effect in January 2025.
"Looking back, 2024 was probably the best year for the brokerage industry, and it's starting to look like the best is behind us, at least for the foreseeable future. In terms of options turnover, we are back to 2022–23 levels. This is even before the impact of the increased lot sizes, which take effect in January 2025," Kamath noted.
In addition to changes in the F&O regulations, there have been other significant regulatory adjustments such as true-to-label charges, STT increases, direct payout of securities, dynamic pricing for F&O stocks, T+0 settlement, and more.
Regulatory changes in 2024
Effective December 1, weekly expiries are now limited to one contract per exchange, with only one benchmark index allowed—Nifty 50 for NSE and Sensex for BSE.
Furthermore, all monthly expiries of options contracts on an exchange will occur on the same day of the month, minimizing regulatory arbitrage possibilities associated with trading weekly expiries in other index contracts during the last week of the month.
In order to curb excessive trading activity on expiry days, an additional margin of 2% of the contract size has been introduced for all short option contracts.
Starting from January 1, there will be a 2-3x increase in lot size for all index options contracts.
Lastly, the calendar spread margin benefit on expiry days will be eliminated, effective from February 1.
SEBI has issued regulations setting maximum open interest position limits for clients and brokers. These limits are currently set at 5% of total OI for clients and 15% for brokers.
Any violations are being monitored at the end of the day, with penalties and margin blocks imposed as necessary. Moving forward, these limits will also be monitored intraday to prevent violations throughout the trading day.
Effective Feb 1, 2025, SEBI mandated that option buyers must pay the entire premium upfront. This new regulation aims to address the excessive leverage offered by some brokers in intraday options trading, where traders already face risk from the underlying contract. Zerodha has always collected option premiums upfront as a standard business practice.