‘The best is behind us…’: Zerodha’s Nithin Kamath flags SEBI’s F&O regulations’ ripple effect on brokerage platforms

Nithin Kamath, Indian online brokerage platform Zerodha's Co-founder and Chief Executive Officer, shared his take on how the brokerage industry had witnessed its best run in 2024. However, Kamath thinks that the best days are behind the industry now. 

“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,” said Kamath in a post on social media platform X. 

Zerodha, in its blog, shared that the futures and options (F&O) regulations imposed by the security market regulator, the Securities and Exchange Board of India (SEBI), have fuelled a 20-30 per cent drop in F&O activity on the exchanges across the brokers in the country.

“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,” said the brokerage in its blog posted on January 1, 2025.

The Nithin Kamath-led brokerage also noted that 2024 was a year of “significant regulatory changes”, which affected everyone from the markets and retail investors to the brokers.

“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,” said Kamath. 

SEBI's F&O move

SEBI's rising concerns over the increase in speculative activity in the F&O segment led the regulator to impose regulations on it. Zerodha's report also highlighted and summarised the regulations which they have imposed on F&O activities; they are as follows:

1. SEBI limited the weekly expiry of contracts to one contract per exchange and one benchmark index — Nifty 50 for NSE and Sensex for BSE, effective December 1, 2024.

2. Along with the limit, it also directed that all expiries of options contracts of exchange will happen on the same day of the month, limiting the regulatory arbitrage of trading weekly expiries in other index contracts on the last week of the month.

3. The regulator also imposed an additional margin of 2 per cent of the contract size on all short option contracts to discourage excessive activity on expiry days. 

4. Effective January 1, 2025, the lot size of all index options contracts will increase by 2 to 3 times.

5. The calendar spread margin benefit on expiry days has been removed, effective from February 1, 2025.

6. SEBI also imposed maximum open interest position limits between client and broker. This is nearly 5 per cent of the total open interest on a client level and 15 per cent for the brokers.

The regulator monitors it daily to ensure traders don’t violate the limit during the day either. It will now be applicable to intraday as well, according to the brokerage.

7. An option buyer needs to pay the entire option premium upfront to reduce the excessive leverage quotient that some brokers would offer while trading intraday options where the user is already trading the risk of the underlying contract. This is effective from February 1, 2025.