Derivative curbs were 'necessary', says Sebi's Ananth Narayan, NSE's CEO says contract sizes still 'very small'

MC Global Wealth Summit

Capital market regulator Sebi's whole-time member Ananth Narayan said it saw as 'necessary' the need to reduce options activity in the derivatives market, especially on expiry days, and took recent steps to curb 'overtrading'.

Speaking at the Moneycontrol Global Wealth Summit 2025 in Mumbai on March 7, Narayan said risk management is essential for capital creation. In response, the MD & CEO of National Stock Exchange, Ashish Chauhan said India's derivatives contract sizes are still 'very small' in terms of value, and not comparable globally.

"We had one specific concern on speculative trading during expiry day. We took the six steps to target over trading of index derivatives on expiry day," Ananth Narayan said.

The capital market regulator had in October 2024 issued regulations to curb excessive activity in derivative trading particularly by retail investors, after an internal survey showed a vast majority of domestic traders incurred losses from betting on futures and options (F&O) contracts. These measures included increasing the minimum contract size from Rs 5 lakh to Rs 30 lakh in a phased manner, collection of premium upfront from clients, and more.

Narayan credited the efforts by SEBI to have reduced index option volumes without affecting the wider derivatives market as a whole. "We are happy with the outcome," he added.

"The regulatory intent with market participants is clear. We did find it necessary to reduce volumes on expiry day. Even today, the total number of contracts traded on NSE is 40x higher than the next best exchange,” he said, referring to India’s disproportionate share in the global futures and options volume.

In response to Sebi’s comment on derivative volumes, National Stock Exchange’s CEO and a co-panelist Ashish Chauhan said, "I think some of the measures on F&O are yet to come play. In the meantime, newer measures will come out. Many other exchanges are also asking for new expiries."

One of Ananth Narayan’s advice to exchanges was to cultivate a stronger cash segment activity. "First develop a cash market before you come out with a derivative. Derivatives for the sake of derivatives is not desirable," he said during the discussion.

On multiple days for expiry of options contracts, the SEBI member said the market regulator will find a way to rationalize them.

NSE CEO Ashish Chauhan added that Indian exchanges’ contract sizes in derivatives market are very small compared to global standards. "It is one-fifth or even one-tenth of what is there in Europe and in other countries. It is not comparable (our derivative markets with other countries' markets)," he added, underscoring the point that NSE may have a large number of such contracts, however, it is nowhere near its major global peers in terms of value.

Ananth Narayan maintained that incoming data will define Sebi’s future regulatory intent.

"There are plenty of metrics that has shown that the size of our derivatives markets in relation to our market capitalisation has been extraordinarily high compared to global standards. We found that 89 percent of F&O investors have (incurred) losses. 93 percent of all trades, mostly in index derivatives, were losing money. People who were losing for two years in a row continue to trade in the third year as well. Options trading was becoming a ‘national pastime’ and we needed to use national resources for better purpose."

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