India Dominates Global F&O Market Amid Regulatory Concerns
By Ashish Rukhaiyar
June 20, 2024 / 03:57 PM IST
India's financial markets have achieved a significant milestone, with the National Stock Exchange (NSE) and Bombay Stock Exchange (BSE) emerging as the top two bourses globally in terms of futures and options (F&O) trading volumes. In April 2024, the combined turnover of these two exchanges accounted for over 80% of the global F&O volume, according to data from the Futures Industry Association.
Unprecedented Trading Volumes
The NSE led the global bourses with a staggering 8,484 million contracts traded in April, followed by BSE with over 2,224 million contracts. This surge in volume represents a 92% year-on-year increase for NSE. The BSE's growth in F&O trading is particularly notable, as it only began to see significant activity from May 2023, having previously hovered around near-zero levels.
Overall, the combined trading volume of NSE and BSE was nearly 81% of the global equity derivatives turnover in April. This dominance is highlighted by the fact that Brazil’s B3, which is third in global ranking, saw just over 692 million contracts traded in the same period.
Financial Impact
The high trading volumes have substantial financial implications for both Indian exchanges. BSE has consistently generated revenues exceeding Rs 30 crore per month from the F&O segment since December 2023, peaking at Rs 43.04 crore in February 2024. While specific revenue figures for NSE are not detailed, the exchange's transaction charges, which are its primary revenue source, amounted to Rs 12,049 crore in FY24.
In terms of daily turnover, BSE's average daily turnover increased from 3.5 million contracts in FY24 to 9.12 million contracts in FY25. Similarly, NSE saw its monthly average number of contracts rise from 7,933 million in FY24 to 8,653 million in FY25.
Regulatory Concerns
Despite the financial benefits, the burgeoning F&O trading volumes have raised concerns among regulators. A study released by the Securities and Exchange Board of India (SEBI) in January 2023 revealed that a significant majority of individual traders in the equity derivatives segment incurred net losses. Specifically, 89% of individual traders and 90% of active traders faced losses in FY22, with average losses of Rs 1.11 lakh and Rs 1.25 lakh, respectively.
The Reserve Bank of India (RBI) has also expressed concerns. RBI Governor Shaktikanta Das emphasized the need for vigilance, noting that the volume of options and futures trading has surpassed the nominal GDP of India. Both the RBI and SEBI are closely monitoring the situation to ensure financial stability.
Conclusion
The rapid growth in F&O trading volumes at NSE and BSE underscores the importance of the equity derivatives segment to India's financial markets. While the exchanges continue to benefit from the increased activity, the regulatory authorities are focused on addressing the potential risks associated with such high levels of trading. As the Indian economy remains stable, the ongoing scrutiny by SEBI and RBI aims to ensure that the growth in F&O volumes does not lead to broader financial instability.
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