SEBI Implements New Measures to Mitigate Speculative Trading in Futures and Options
Mumbai: The Securities and Exchange Board of India (SEBI) has unveiled a series of regulatory measures aimed at curbing speculative trading in the futures and options (F&O) segment, responding to alarming trends that show nine out of ten participants have incurred losses over the past three years.
One of the key changes involves an increase in the minimum contract size for index derivatives, which will rise from Rs 5 lakh to Rs 15 lakh. This adjustment is designed to discourage excessive trading and promote more responsible investment behaviors among retail traders.
Additionally, SEBI has decided to limit the weekly index expiry count to one per exchange. This means that exchanges can now offer only one expiry per week on a designated benchmark index, significantly reducing the frequency of trading activity tied to expiry day. The regulator stated in a circular, “In order to specifically address the issue of excessive trading in index derivatives on expiry day, it has been decided to rationalize index derivatives products offered by exchanges which expire on a weekly basis.”
These measures come in response to the substantial losses faced by retail investors within the F&O market. A recent SEBI study revealed that in the last three years, a staggering total of Rs 1.81 lakh crore has been lost by 1.10 crore traders, with only 7 percent achieving profitability.
Following the new regulations, the size of derivatives contracts for major indices such as Nifty and Sensex will be adjusted from the current range of Rs 5 lakh-Rs 10 lakh to Rs 15 lakh-Rs 20 lakh. These changes will apply to all new index derivatives contracts introduced after November 20, 2024.
The derivatives market in India has experienced significant growth in recent years. According to SEBI, the country’s derivatives market has now surpassed its cash market. Currently, India contributes 30 to 50 percent of total global derivatives trading activity. Data indicates that cash market turnover has doubled from FY 2020 to FY 2024, while index options turnover has skyrocketed from Rs 11 lakh crore in FY 2020 to Rs 138 lakh crore in FY 2024, marking a twelvefold increase.
As SEBI implements these measures, the hope is to foster a more stable trading environment that better protects retail investors from the inherent risks associated with speculative trading in the F&O segment.
