Tough time ahead for broking industry, says Nithin Kamath as SEBI regulates options trading

Indian market regulator SEBI in its latest board meeting announced that some derivative products could be removed from the market. Reacting to this, online stock brokerage Zerodha's Co-founder Nithin Kamath in a post in X said that tough times are ahead for India’s broking industry due to their business model being skewed more towards earning primarily from options.

Kamath in the post also noted that the volume in the options trading has gone up from 4.6 lakh crore in 2018 to 138 lakh crore in 2024, and, the share of retail has gone up from 2% to 41%

As I've said before, regulatory risk is the biggest risk for any regulated business.

We are in the middle of a period of excess in options trading. Volumes in index options have gone up from 4.6 lk cr in 2018 to 138 lk cr in 2024, and, more importantly, the share of retail has… pic.twitter.com/44QgCbPgUR

— Nithin Kamath (@Nithin0dha) June 28, 2024

SEBI regulations

Options are the contracts that allow traders to buy or sell a financial instrument at a predetermined price at a predetermined future date. This is for safeguarding investments from market price fluctuations. Options provide the investors with a choice of not going through the deal if needed too.

Whereas Futures are instruments just like options, but they don’t have the option to opt out of the deal. Both futures and options come under the term, ‘derivative instruments’ or ‘derivatives.’

In the latest board meeting, SEBI had altered the selection criteria for stocks to be part of the derivatives segment. This was brought in to curb potential market manipulation, on grounds of increased speculative trading that can lead to financial distress, especially for small retail investors.

SEBI chairperson Madhabi Puri Buch in the meet also highlighted that the market has to adapt as, "Wherever there is regulation, there is regulatory risk".

Also watch: Nithin Kamath reveals reason behind avoiding advertising Zerodha