You will have to look at the short term effects and the long term effects of this move separately. Let us look at some likely effects. This move could have a number of effects but we can broadly summarize the key effects as under. Firstly, it will surely compress the intraday trading volumes in the market since most of the trades continue to be heavily leveraged. Also, intraday trading platforms will now lose the leeway of cover orders. Secondly, this move will also hit option sellers. There used to be a lot of option selling happening in deep OTM options and also in stocks that were not too liquid. These higher margins applicable on option selling positions will largely make these non-lucrative. Lastly, we could see a greater shift in volumes towards institutions. One Nifty contract with a notional value of Rs.8 lakhs will entail a minimum margin of Rs.1 lakh even on intraday trades. That would mark a clear shift from intraday traders to institutions in the options space. However, this move could be positive for the markets in the long run. Let explain the reason.

While short term hiccups are likely to be there, this is likely to be beneficial in the long run. The prevalence of speculative volumes and tax transfers in illiquid options will substantially reduce. Of course, greater institutional participation will also mean that the futures and options market become more machine driven and less accessible to the retail investors. But that is the way it is in most developed markets. It will be the right step in that direction.