March 2021 was dreaded by the broking community due to the significant reduction in intraday leverage (2x) as mandated by SEBI. The first phase of the peak margin implementation that came into effect in December 2020 allowed brokerages to offer up to 4x leverage to their clients and didn't really hurt anyone. The anticipation in march was that it could start to hurt brokerages that differentiated primarily based on offering high intraday leverage to their clients. A week has gone by and so far, the volume suggests that the trading activity has sustained at high levels. Here's a snapshot to give you the details as of 5th March 2020:

Volume trends on NSE after the 2nd phase of peak margins in March 2021 (as of 5th March). 
Volume trends on NSE after the 2nd phase of peak margins in March 2021 (as of 5th March). 

My Preliminary Observations:

  1. Equities - As you can see, equity trading was barely affected despite a 50% reduction in leverage from February (Until Feb End brokers were allowed to offer 4x. From march onwards it's a maximum of 2x of VAR + ELM). A 7% decline is not much considering the significant change in leverage. It's an encouraging sign, to say the least. Also, since there is no minimum lot size in equity trading, it's easier for traders to transition to this segment from F&O. 
  2. Index Futures - A 10% drop in index futures is not small by any means but it is still surprising that the activity has held up quite a bit despite the steep hike in margin requirements. While it's too early to draw any conclusions, it's fair to assume that the activity in the 1st week of a new implementation is a reasonable indicator of traders' ability to adapt to such situations. We continue to believe that the index futures segment will further lose its sheen with these new rules coming into place. 
  3. Index Options - It's not surprising that the options turnover has increased albeit to a limited extent of 7% in the 1st one week. This could just be the beginning. Every instrument has uniquely inherent risks. While futures are considered easy from a directional trading perspective, they lack in risk management due to its potential unlimited downside, broker's risk management & margin policies, margin calls, etc. Options trading has advantages that enable retail traders to manage their risk more effectively. How? It requires lesser margins to initiate buy positions, MTM settlement is not applicable as options buyers pay 100% margins upfront, the downside is limited and you can maneuver trades by creating lucrative options strategies & hedge positions effectively. There's a lot of room for creativity in options trading as opposed to futures. 
  4. Stock Futures - This segment was not doing as well to begin with, and as a result had lower liquidity, required higher margins, has inconvenient lot sizes that are not conducive for risk management (Retail traders' small account sizes hinder effective risk management using stock futures). Increased margin requirements could mean that stock futures will become even less liquid in the future and a 26% decline is not a good sign. 
  5. Stock Options - Can't read too much into the 7% decline. The impact cost in stock options is very high and most near-month contracts beyond ATM/CTM strikes are pretty illiquid. 
  6. Currencies - The sharp increase in currency volumes could be due to the lower margin requirements and also the recent volatility in USD. Considering the fact that you can initiate trades in currencies for a fraction of the value that you need in other segments, I guess the volumes will continue to increase here.

Overall, the volumes are buoyant and it looks like people are adjusting to the new scenario quite well. Also, let's not forget that millions of first-time investors opened Demat accounts in the last 1 year ( Approx. 1 crore). It is too early to say who's contributing to the volumes but it's fair to assume that there is increased market participation on NSE. Time will tell whether it's sustainable or not. Until then, it's open for debate amidst the increasing number of neigh-sayers.