Jefferies, a prominent global financial services firm, has issued a warning about potential significant earnings cuts for BSE (formerly Bombay Stock Exchange) and Nuvama, should the Securities and Exchange Board of India (SEBI) implement changes to the expiry cycle of index derivatives.

Potential Impact on Earnings

According to Jefferies' analysis, the proposed changes could have far-reaching consequences for both companies:

• BSE: The exchange could face a substantial 20-50% reduction in earnings per share (EPS) by fiscal year 2027.
• Nuvama: The financial services company might see a 15-25% decrease in earnings.

Scenario Analysis

Jefferies has outlined different scenarios based on potential changes to the derivative expiry cycle:

Fortnightly Expiry Cycle

• BSE: Earnings could drop by 21-35%, depending on the timing of expiry.
• Nuvama: A potential 15% impact on earnings.

Monthly Expiry Cycle

• BSE: A more severe impact with earnings potentially declining by 41-50%.
• Nuvama: Earnings could see a 24% reduction.

Market Response and Regulatory Uncertainty

Despite these potential impacts, BSE shares gained 2.70% to reach an intraday high of Rs 2,223.00 following reports that long-term F&O contracts are not on the agenda for Sebi's board meeting. The stock had previously fallen 8% in two sessions due to reports that the regulator was planning a consultation paper to end weekly expiries for futures and options contracts and shift to monthly expiry.

It's important to note that these projections are based on speculative changes to the derivative contract expiry cycles. SEBI has not yet provided any official confirmation regarding such modifications. The Sebi Chairman had previously indicated that the regulator sees a need to extend equity derivatives tenure and will issue a consultation paper on longer-duration F&O contracts, clarifying this is only a thought process requiring industry consultation.

Recent Regulatory Measures

The regulator has recently implemented measures including delta-based calculation of open interest and changes to market-wide position limits.

Next Steps

Jefferies has indicated that it will be closely monitoring SEBI's upcoming Board Meet, scheduled for Friday, for any clarification on these potential changes. The meeting could provide crucial insights into the regulator's stance on derivative expiry cycles and their potential impact on market participants.

Market Implications

If implemented, these changes could significantly alter the landscape for derivatives trading in India. The potential earnings impact on major players like BSE and Nuvama underscores the far-reaching consequences of regulatory decisions in the financial markets.

Investors and market participants are advised to stay tuned for any announcements from SEBI and to consider the potential implications of these changes on their investment strategies and market outlook.

As of the latest update, BSE shares were trading at Rs 2,218.00, up 2.56%, and have rallied over 65% in the last six months.

BSE and Angel One shares experienced a significant decline, dropping up to 5%, following reports of potential changes to derivatives trading regulations by the Securities and Exchange Board of India (SEBI). This comes as BSE issues warnings to investors about unsolicited investment recommendations for certain penny stocks.

SEBI's Proposed Consultation Paper

According to sources, SEBI is planning to release a consultation paper within the next month that could bring substantial changes to the Futures and Options (F&O) market. The key points under consideration include:

1. Transitioning from weekly to monthly expiries with a defined glide path
2. Implementing same-day expiries across exchanges
3. Introducing curbs on retail participation in F&O segments with suggested thresholds

Market Reaction

The news of these potential regulatory changes has had an immediate impact on the stock prices of both BSE and Angel One:

Recent Performance

Both stocks have shown a downward trend over the past month:

This recent drop follows a similar pattern observed on August 21, when both stocks fell up to 9% after SEBI Chairman Tuhin Kanta Pandey first discussed the possibility of longer tenor for derivatives contracts.

BSE Warns Investors

In a separate development, BSE issued warnings to investors about unsolicited investment recommendations for Elegant Floriculture & Agrotech India and Spright Agro stocks. These recommendations are coming from unauthorized entities through various platforms including WhatsApp, Telegram, SMS, calls, and social media.

The exchange specifically named several unregistered entities, including Vijay Wealth Advisor, Baadshah Badshah Broking, and Pankaj Bhardwaj Way2laabh, that are operating through Telegram channels and offering trading tips or guaranteed returns.

Elegant Floriculture & Agrotech India, with a market cap of Rs 16 crore, fell 4.95% to Rs 8.07 and hit its 5% lower circuit limit with volumes surging over 1.10 times.

BSE advised investors not to share trading credentials and cautioned against claims of high or assured returns, noting these schemes are neither approved nor endorsed by exchanges.

Next Steps

SEBI is expected to begin consultations with exchanges next week, with the regulator's board meeting scheduled for Friday. Market participants and investors will be closely watching these developments, as any changes to F&O regulations could have significant implications for trading strategies and market dynamics.

The proposed changes, if implemented, could reshape the derivatives market in India, potentially affecting trading volumes, market liquidity, and risk management practices for both institutional and retail investors.