Mint Explainer: Sebi's notional turnover fee directive – ripples and remedies

livemint.com:

BSE estimates its total outgo to be around ₹69 crore, including interest, excluding GST, from FY07-23, and ₹96 crore (excluding GST) for FY24, which it must pay to Sebi by 30 April, as per the directive. It also noted that it had already paid ₹1.66 crore plus GST on premium turnover to Sebi for the previous fiscal year. Two figures stand out here: a fee of ₹1.66 crore on the premium turnover of options plus GST, and ₹96 crore plus GST on the notional turnover of options.

Like futures contracts, options allow you to buy or sell an underlying stock or index at a predetermined rate for delivery in the future. There are two types of options: call options and put options. Call options give a buyer the right to buy an underlying asset at a pre-set price in the future.

Put options give a buyer the right to sell an underlying asset at a pre-set price in the future. In reality, the price difference is exchanged. For every buyer, there must be a seller, and the option seller takes on unlimited risks by selling the buyer a call or put, receiving a premium in return.

This premium is the price of the option and represents the maximum a buyer can lose. Options account for 98% or more of total derivatives turnover on the National Stock Exchange and BSE because they are popular among retail and proprietary traders due to their relatively low cost compared to futures contracts. For instance, the margin to trade one Nifty contract (25 shares) is around ₹90,000, while the price of the 22800 Nifty call option expiring on 2 May is ₹1,462.5 per contract—a significant difference.