Retail F&O Trading Remains Strong Despite Sebi Regulations
Securities and Exchange Board of India (Sebi) is closely monitoring the trading activities of individual investors in index options, as recent data indicates that trading levels remain higher than anticipated. Despite a year-on-year decline in individual participation, the overall trading volume in equity derivatives has surged compared to two years ago. Sebi’s ongoing review may lead to further regulatory actions aimed at enhancing investor protection and ensuring market stability.
Current Trading Trends
Sebi’s analysis of trading activity from December 2024 to March 2025 reveals a complex picture. While the number of individuals trading in equity derivatives has decreased by 12% year-on-year, it has increased by a remarkable 77% compared to the same period two years prior. This indicates a significant recovery in trading volumes, despite the regulatory measures implemented in November 2024 to curb excessive individual trading activity. These measures were introduced after data showed that over 90% of individual traders were experiencing losses, prompting concerns about the sustainability of such trading patterns.
Index options have emerged as a focal point of concern for Sebi, particularly due to heightened speculation, especially on expiry days. The data indicates a 5% decline in individual trades in index options on premium terms and a 16% drop on notional terms year-on-year. However, when compared to two years ago, trading volumes in this segment have increased by 34% on premium terms and an astonishing 99% on notional terms. This persistent high level of activity has raised alarms about potential risks to investor protection and market integrity.
Regulatory Response and Future Actions
In light of the ongoing trading trends, Sebi plans to re-evaluate individual trading activities in index options. A source within the regulatory body emphasized the need for a thorough examination from both an investor protection and systemic stability perspective. Despite previous measures aimed at reducing speculative trading, the high levels of activity in index options have persisted, prompting Sebi to consider additional actions if necessary.
The regulator’s commitment to monitoring trading activity reflects its proactive approach to maintaining market stability. Sebi recognizes that while India leads globally in derivatives trading volumes, this growth must be accompanied by robust risk monitoring mechanisms. The source noted that the rapid expansion of trading activities necessitates improvements in how risks are assessed and managed to prevent market manipulation and unintended disruptions.
Enhancing Risk Monitoring
Sebi is actively working on refining its risk assessment strategies to better manage exposure and mitigate manipulation risks. A recent consultation paper titled “Enhancing Trading Convenience and Strengthening Risk Monitoring in Equity Derivatives” highlights the importance of comprehensive surveillance and enforcement over blanket regulations. The paper suggests implementing smarter surveillance tools to address market concentration risks while avoiding overly rigid regulations that could hinder healthy market-making.
Feedback from the public on these proposals has been largely positive, with several suggestions incorporated into the final plans. The adjustments include relaxing position limits for index options to Rs 1,500 crore on a net basis and Rs 10,000 crore on a gross basis, with no intraday cap. These changes aim to facilitate smoother trading experiences for participants while ensuring that adequate risk monitoring remains in place.
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