A recent study by market regulator Sebi says discount brokers are driving the massive F&O volume dominated by the NSE
Full-service brokerages AngelOne and Motilal Oswal are ahead of discount brokerages in the futures & options trade, with their revenue shares from this segment at 82 per cent and 54 per cent, respectively, according to an analysis. A recent study by market regulator Sebi said discount brokers are driving the massive F&O volume dominated by the NSE, which continues to be the world’s largest derivative exchange for the fourth year on the trot in 2022.
The market watchdog had on January 25 said 9 out of 10 retail traders in the equity F&O suffered losses to the tune of Rs 1.1 lakh in FY22. It also said there has been a significant increase of over 500 per cent in the number of individual traders in the equity F&O segment in FY22 compared to FY19.
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The regulator said it would soon issue guidelines on additional risk disclosures required to be made by brokers and exchanges to investors.
AngelOne, with its tech-focus has become the largest brokerage in a short span with 12.89 million customers as of January 2023, netting in as much as 82 per cent of its Rs 759.7 crore revenue from equity derivative trading in the December 2022 quarter. The brokerage had 72 per cent and 52 per cent income from the F&O business in the past two consecutive fiscals, according to the information available on its website.
Similarly, Motilal earned 54 per cent of its income of Rs 688 crore in Q3 from the F&O segment, according to its website. In fact, its revenue share from this segment has been continuously rising over the years — from 39 per cent in FY19 to 41 per cent in FY20, but declined marginally to 37 per cent in FY21 but rose again to 39 per cent in FY22 and to 54 per cent in Q3FY23.
On the other hand, Zerodha, which is the second largest brokerage and the leader in discount broking with over 7 million active customers, earned only 20 per cent of its volume from F&O as 75 per cent of its volume came in from equity and mutual funds, its spokesman told PTI refusing to share the revenue side.
The Bengaluru-based brokerage had Rs 4,964 crore revenue, from which it earned Rs 2,094 crore in net income in FY22, the spokesman added, refusing to share the numbers for the current fiscal.
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Discount brokers like Upstoxx and 5paise as also full-service HDFC Securities did not respond to queries from PTI.
Another full-service brokerage Geojit Financial Services had low brokerage income from the F&O segment. During the April-December period, its derivative income was only 20 per cent, which on an on-year basis rose from 17 per cent in FY22 and 14 per cent in FY21.
Similarly, ICICI Securities, which has around 8.7 million customers, also had only 20 per cent of its Rs 88 crore coming in from the F&O business in Q3, up from 16 per cent a year ago, according to its website.
On the Sebi report and the surge in F&O volume, CJ George, founder and chief executive of Geojit Financial Services, told PTI that the study should act as a wake-up call for all.
“We don’t focus on derivatives trading. Only 20 per cent of our brokerage income comes from derivatives and the balance is from other investment avenues, contrary to industry standards. In fact, when we found that individual traders are largely losing money in derivatives, we’ve reduced employee incentives by 50 per cent for derivative brokerage income,” George said.
The Sebi study, based on the data from the top 10 brokers, shows that there were 45.2 lakh individual traders who participated in F&O trading in FY22 — over 500 per cent increase from just 7.1 lakh in FY19. F&O trading has been a major attraction for many newcomers, especially among the young as 36 per cent of them were in the 20-30 age group in FY22, up from 11 per cent in FY19.
The Sebi findings analysed the trading by individual investors with regard to net profit or loss encountered by them in the equity F&O segment during FY19 and FY22. The study is based on a sample of all individual clients of all the top-10 stock brokers, accounting for 67 per cent of the overall individual client turnover in the equity F&O segment during FY22.
The study reveals 89 per cent of individual traders (9/10 individual traders) in the equity F&O segment incurred losses, with an average loss of Rs 1.1 lakh in FY22. Moreover, 90 per cent of the active traders incurred average losses of Rs 1.25 lakh during the same period.
On the other hand, only 11 per cent of individual traders in the equity F&O segment made a profit, with an average profit of Rs 1.5 lakh in FY22. The percentage dropped marginally to 10 per cent for active traders, though the average profit made by them went up to Rs 1.9 lakh during the same period.
The Sebi has also found that the total number of individual traders on the top 10 brokers in the equity F&O segment was 45.2 lakh in FY22, up from 7.1 lakh in FY19, of which 88 per cent were active traders. Individual traders belonging to the 30-40 age bracket had the highest share in participation (39 per cent).
As much as 98 per cent of individual traders in the equity F&O segment traded in options and 11 per cent traded in futures in FY22 as opposed to 89 per cent and 43 per cent, respectively, during FY19.
