Options turnover sinks at Dalal Street's top exchange preparing for IPO

Options turnover on India’s biggest stock exchange fell to the lowest in a year on monthly expiry day, reflecting the impact of the stricter trading rules and the introduction of the closing-auction system in the world’s largest equity derivatives market.

Premium turnover on the National Stock Exchange of India Ltd. declined to about 670 billion rupees ($7 billion) on Tuesday, the lowest since the bourse shifted its derivatives expiry from Thursday to Tuesday about a year ago, according to bourse data. Volumes in cash equities trading — where the exchange holds more than 90% of the domestic market share - fell to the lowest since November.

The decline reflects the cumulative impact of measures aimed at cooling India’s once-frenetic derivatives market, including reducing the number of weekly expiries and increasing contract sizes and curbing bank funding to proprietary trading firms.


The shrinking options trade is bad news for NSE as it prepares for what would be India’s biggest initial share sale. Options generated about 100 billion rupees in transaction charges in the year ended March, accounting for 60% of revenue from operations, according to NSE’s IPO filing.

“The decline in options volumes is a challenge for NSE ahead of its IPO,” Kranthi Bathini, equity strategist at WealthMills Securities. “But we see this as a short-term hiccup rather than a long-term concern.”

The rollout earlier this month of the auction mechanism to set closing share prices has reshaped expiry-day strategies, triggering sharp stock moves during the process. Institutional and retail traders have largely stayed away from the auction — held between 3:15 p.m. and 3:35 p.m to determine closing prices of more than 200 stocks — as the market adjusts to the new system.