SEBI Sounds Alarm on Derivatives Trading: New Measures Aim to Curb Retail Losses

Image Source: SEBI Tightens Radar on F&O Markets as Retail Losses Mount, Eyes Long-Term Reforms

The Securities and Exchange Board of India (SEBI) is increasing vigilance over the futures and options (F&O) segments with concerns growing over retail investor losses and short-term speculative trade. Sources familiar with the development indicated that up to 90% of retail option traders continue to incur losses, especially on weekly expiry dates, prompting the regulator to consider more structural changes.

SEBI is reported to be working on a multi-faceted strategy for limiting excessive risk-taking, promoting longer-term contracts, and encouraging genuine hedging rather than speculative bets. SEBI has already rolled out a delta-based open interest indicator to more closely reflect genuine economic exposure in lieu of the traditional notional method.

Key Issues

Retail Losses: Over 93% of retail traders suffered losses on F&O in FY22-FY24 with aggregate losses exceeding ₹1.8 lakh crore3
Speculative Trading: Over-emphasis on short-term expiries and social media-driven speculation
Age Group Impacted: Growing number of traders are under 30 years, with significant numbers from Tier-2 and Tier-3 cities
Overconfidence Bias: SEBI Chairman Tuhin Kanta Pandey highlighted that retail investors commonly overestimate their capability and incur recurring losses

Regulatory Interventions Ongoing

Delta-based OI Indicators: To value correct genuine exposure in options trading
Amended Limits: Gross end-of-day limit raised to ₹1,500 crore; gross limit of ₹10,000 crore per side for index options
Investor Education: Demand for awareness campaigns and potential entry hurdles based on net worth or certification
Discussion Papers: SEBI invites stakeholders' opinions on expiry-day volatility and prevalence of algorithmic trading

"There is a need to systematically push the market to longer-dated contracts and encourage long-term investing," a SEBI official stated.

Sources: MSN, SEBI Press Release, Business Standard, India Today, Financial Express –