Retail F&O trades still high despite Sebi curbs; fresh review likely to reassess risks

Sebi has observed that individuals’ activity in index options within the derivatives segment has not declined as much as expected and may take further action after a deeper review, sources told news agency PTI.The capital markets regulator examined activity between December 2024 and March 2025 and found that although there has been a year-on-year drop, trading levels remain significantly higher than two years ago.In November 2024, Sebi introduced restrictions in the futures and options (F&O) market targeting high individual activity, following data that showed over 90 per cent of individual traders were incurring losses.According to Sebi’s analysis, the number of individuals trading in equity derivatives fell 12 per cent year-on-year, but rose 77 per cent compared to the same period two years ago (December 2022–March 2023).Index options remain the primary area of concern due to intense speculation, especially on expiry days. Individual trades in index options were found to be down 5 per cent on premium terms and 16 per cent on notional terms year-on-year. However, compared to two years ago, volumes are up 34 per cent on premium and 99 per cent on notional terms.“Sebi will re-examine the trading activity of individuals in index options from an investor protection and systemic stability perspective,” a source said.“It has been noticed that despite the measures taken last year to contain speculative overtrading in index options, particularly on expiry day, the activity is high,” the source added.“Sebi is going to continue monitoring the activity in index options, and, if warranted, would be examining the feasibility of any further actions in this regard,” the source said.Despite regulatory actions, India continues to lead globally in derivatives trading volumes. The source said this growth must be matched with stronger risk monitoring.“There is a need to match the rapid growth with commensurate improvements in risk monitoring,” the source added.Sebi is working on refining how it assesses exposure, reduces manipulation risk, and avoids unintended disruptions. The February consultation paper titled “Enhancing Trading Convenience and Strengthening Risk Monitoring in Equity Derivatives” emphasized that comprehensive surveillance and enforcement should take precedence over blanket regulations.The paper proposed tighter controls on market concentration risks using smarter surveillance tools, as overly rigid regulations could hamper healthy market-making.According to the source, public feedback on the proposals was largely positive, and some suggestions were incorporated into the final plans.Position limits for index options have been relaxed to Rs 1,500 crore on a net basis and Rs 10,000 crore on a gross basis, with no intraday cap, to support smoother trading for participants, the source added.