MC Exclusive: Expiry day volatility: SEBI’s Ananth Narayan says watching if more steps need to be taken

A report released by the regulator said that nine out of 10 individual traders lost money in the futures and options (F&O) segment in FY24. It said that the number of individual traders in the F&O segment who incurred losses widened to 91.1%—about 7.3 million. This was greater than 89% of individual F&O traders who lost money in FY22.

Even as the stock market took a U-turn today, with the Sensex gaining 1,950 points from its intra-day low due to high volatility — now seen as the new normal on expiry days — SEBI whole-time member Ananth Narayan told Moneycontrol that SEBI will evaluate whether additional measures are needed to rein in excessive volatility."

Speaking to Moneycontrol on the sidelines of the IFTA 2024 event in Mumbai, Narayan said, “…(Apart from losses experienced by retail traders) We were also seeing structural risks coming through because of the size of the trading happening on expiry days. So we took a set of steps only for curbing expiry date frenzy especially in index options. Depending on the outcomes, we will consider and consult on any further regulatory or developmental steps required to be taken."

Traders said that expiry day volatility continues unabated on Thursdays and Fridays when Nifty and Sensex weekly contracts expire.

As for volumes, early indications show a 25-35 percent drop across exchanges since the measures took effect on November 21, with a clearer impact observed from December 1 — the first week with three days of no expiry. Adjustments to lot sizes, aimed at enhancing market stability, are set to fully roll out by January 1. 'That’s when we will see the full impact of SEBI’s measures on retail trading and losses,' Narayan added. However, he did not comment on what kind of measures, if any, SEBI might introduce with respect to derivatives trading

Narayan was responding to Moneycontrol’s questions on whether Sebi has achieved its desired outcome with the index derivatives rationalisation measures introduced in November.

On October 1, SEBI issued a new framework for the index-derivatives segment, including reducing contracts with weekly expiries, increasing the contract size and charging additional margin for contracts with zero-days to expiry. Its impact was also seen in the equity derivatives segment for NSE. On NSE, the average daily turnover for the F&0 segment fell to Rs 17 lakh crore in December from Rs 44 lakh crore in November.

A report released by the regulator said that nine out of 10 individual traders lost money in the futures and options (F&O) segment in FY24. It said that  the number of individual traders in the F&O segment who incurred losses widened to 91.1%—about 7.3 million. This was greater than  89% of individual F&O traders who lost money in FY22.

Narayan's remarks also touched on other regulatory developments, including SEBI’s consultation paper on SME IPOs, which proposes raising the minimum application size from Rs 1 lakh to Rs 2 lakh or even Rs 4 lakh. Critics argue that this could push retail investors out of the segment. Narayan clarified that the aim is to prioritise risk-aware investors, given the lighter regulatory framework for SME listings.  To which Narayan said, "We’re saying that because it involves a lighter listing process, where it doesn’t go through the rigor of SEBI’s own explicit approval. We want risk-aware investors. The idea is to strike a balance between facilitating capital raise and investor protection."

Regarding T+0 settlements, Narayan pointed to tepid adoption, with volumes lagging despite the intent to boost efficiency and transparency. "Adoption is low because it’s still in beta version with only 25 stocks and limited number of brokers. We have just announced an expansion of the offering now. Additionally, larger brokers will be offering this optional facility to their clients over time. Over time, like with earlier innovations such as demat of securities and ASBA in primary, adoption should improve," he said.

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