Sebi Restores VWAP Rules, Sparking Hope for Brokerage Revenue Recovery

Rule Changes and Broker Hopes

The Securities and Exchange Board of India has revised its closing auction session framework, raising hopes for a recovery in derivatives trading and brokerage revenues. Stockbrokers facing a slowdown in key income streams expect the restored rules to help business return to earlier levels. The changes will take effect on 7 December.

Background on the Auction Framework

Introduced on 3 August, the earlier closing auction session determined closing prices for 213 futures and options stocks through an auction that created a single equilibrium price, replacing the final volume-weighted average price. However, the system caused sharp price swings and settlement uncertainty on expiry days, leading to concerns about liquidity. Between 3 August and 30 September, closing auction session volumes fell 84% to 4.2 million contracts, while traded value dropped 77% to 297.72 crore rupees.

Market Response and Recovery

Trading activity began recovering after Sebi issued a consultation paper on 12 September proposing to roll back the framework. Bank Nifty futures volumes grew 9.6% to 26,622 contracts by the end of September, while Nifty futures volumes rose 20% to 66,539 contracts. Major brokerages saw drops in the share of broking revenue during the September quarter of financial year 27. At Angel One, broking revenue fell to 55% of consolidated gross revenue, while Groww saw broking operations contribute 68.4% of total revenue. Despite this, leaders at both firms expressed optimism about the regulatory shift.

Context

Regulatory changes by market watchdogs like Sebi directly influence how stock exchanges and trading platforms operate in India. When rules affecting trade settlements or pricing mechanisms change, institutional and retail participants often adjust their trading volumes accordingly. Broking firms rely heavily on active trading volumes for their primary fee income, making policy shifts crucial for their financial health.