Zerodha's Nithin Kamath Breaks Down SEBI's New F&O Changes; Here's What He Said

Nithin Kamath suggests that if the objective is to curb speculation, implementing a product suitability framework to discourage non-serious traders could be more effective

Zerodha co-founder Nithin Kamath

Source : X

Zerodha co-founder Nithin Kamath believes that the proposed changes in the Securities and Exchange Board of India (SEBI) consultation paper on F&O, despite the increase in Securities Transaction Tax (STT), are unlikely to majorly affect options volumes. However, he anticipates a potential decrease in futures trading volumes as a result of these changes.

"A few thoughts on SEBI’s consultation paper on F&O: The suggested changes, even with the STT increase, won’t really change options volumes. But on the flipside, they will reduce futures volumes. From what I’ve seen at Zerodha, futures traders have higher odds of making money than option buyers. On a gross basis, futures traders are profitable about 50 per cent of the time as opposed to options traders, who are only profitable about 10 per cent of the time. This is because options come with almost unlimited leverage, whereas leverage on futures is capped at 6 times (15 per cent for index)," Kamath wrote in a post on X (formerly Twitter). 

A few thoughts on SEBI’s consultation paper on F&O:

The suggested changes, even with the STT increase, won’t really change options volumes. But on the flipside, they will reduce futures volumes.

From what I’ve seen at Zerodha, futures traders have higher odds of making money…

— Nithin Kamath (@Nithin0dha) July 30, 2024

He suggests that if the objective is to curb speculation, implementing a product suitability framework to discourage non-serious traders could be more effective.

SEBI's proposals, detailed in a consultation paper, are designed to bolster investor protection and market stability in response to increasing retail participation and speculative trading in index derivatives. SEBI recommends that members collect option premiums from clients upfront, aligning this practice with the current requirement for margin collection in future positions.

“Whether it is an STT increase in budget or contract size going up to 20 lakhs, these changes will incentivise futures traders to move to options. If the intent is to reduce speculation, then the solution is maybe to make it harder for non-serious people to trade by having a product suitability framework,” he added in his post on Tuesday.