Nithin Kamath sees tough times for broking industry as regulator seeks to rein in options boom

The Zerodha chief's statement comes as Sebi chair said the regulator is taking note of the highly speculative nature of options trading and that it would take action based on the recommendations made by the working committee.

"We are in the middle of a period of excess in options trading. Volumes in index options have gone up from 4.6 lakh crore in 2018 to 138 lakh crore in 2024, and, more importantly, the share of retail has gone up from 2% to 41%," Kamath said.

He acknowledged that the broking industry, particularly Zerodha, has been a big beneficiary of this jump in options volumes.

"But, we have always been aware that it can be significantly reduced in size due to regulations, which can significantly hurt revenues, and that's also why we have never made any forward projections," he said.

"But yeah, times will be tough for the broking industry going forward because almost everyone's business model is skewed towards earning from options. Kal Ho Na Ho is a good way to put it," Kamath added.

Worried about hyperactive retail traders losing tons of money in the derivatives market, the government is also said to be considering a proposal to impose higher income tax on futures and options (F&O) by treating it akin to income from lottery or cryptocurrencies in the Union Budget, according to reports.

Currently, income from F&O transactions is treated as business income and taxed according to income slabs of 5%, 20%, and 30%. The existing classification also allows gains from F&O to be offset against losses from other business activities. Applying TDS to F&O would allow the government to track investors in the market more effectively and also deter frequent trading.