FNO trading volumes now a macro concern, with household savings diverted to speculation: Sebi's Madhabi Buch

Trading in futures and options (F&O) segment has now become a macro-level concern, said the Chairperson of the capital markets regulator.

The chief of Securities and Exchange Board of India (Sebi) Madhabi Puri Buch was speaking at an event organised by SBI Mutual Fund.

She said that the worry for the regulator is now not just from a "micro-level", of the nature of F&O trading putting investors at risk, but also from a "macro-level", of it disrupting the economic growth.

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She said the growth in trading volumes in the segment and the losses could not have been predicted.

On the change that has happened over the last few years, Buch said, "If you see the way the (F&O trading) volumes have grown over the last few years, I don't think anyone would have anticipated. If you see the number of young people who have entered that entire process (of taking F&O trades), who have lost tonnes of money, no one would have expected that."

Buch added, "It has now reached a scale where we feel that the micro objective of protecting the individual investor has changed to the point to thinking about (this being a) macro issue... (questioning if this) is what our market is designed to do, to basically facilitate a lot of speculative transactions."

She said that, at a macro level, the regulator is worried that household savings is not going into capital formation but into speculative activity.

According to Buch, SEBI is now compelled to act, but she added that the regulator will always be guided by data and that it will change its view if the data points to a different course of action.

The Sebi Chairperson said, "We have been saying for a long time, Sebi now eschews dogma and only follows dictum."

She reiterated for emphasis, "Data and no dogma," and added, "so tomorrow if the facts change again, we will change our views again."

Buch had elaborated on the regulator's concerns around the rocketing of F&O volumes and the systemic risk it presents after its recent meeting with Sebi's Board on June 27.

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At the press conference, she said, "There is a systemic risk in the capital market ecosystem itself. Are we running a risk of a black-swan event? We think we are reasonably well protected. But there is always room for improvement."

To illustrate the acceleration in volume growth in this segment, she quoted numbers.

Buch said that turnover in index options in premium terms has gone up from Rs 4.5 lakh crore in 2018 to Rs 140 lakh crore in 2024. While overall turnover in derivative segment has gone up from Rs 210 lakh crore in 2018 to Rs 500 lakh crore in 2024. And the share of individual investors has gone up from 2 percent to 41 percent in the same period.