Even as retail enthusiasm in India’s booming derivatives market tapers in the wake of stricter SEBI regulations, alarming data on trader losses and alleged manipulation by global firm Jane Street has reignited debate on how to make the F&O ecosystem more equitable — and responsible.
An exclusive Moneycontrol panel discussion on “Reforming India’s F&O Market,” four prominent market experts made a suite of prescriptions aimed at rebalancing a market long dominated by speculative fervour and retail participation often untethered from risk awareness.
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1. Restrict Access, Not Just Products
All experts strongly recommended raising the entry barrier for participation in the F&O market. Instead of banning products like weekly options outright, the panelists urged regulators to tighten access criteria. “Filter out the absolute lower end of the retail market,” he said. “Let educated, risk-aware investors stay.”
Ashish Gupta, CIO of Axis Mutual Fund, echoed this sentiment. “Everyone and anyone should not be allowed access to such complex, leveraged products. Most of the trading is happening on expiry day — often in the last 30 minutes. It’s not an investment decision; it’s like buying a lottery ticket.”
2. Income-Based Access Filters
Mrigankh Paranjpe (Managing Partner, MCQ and former MD & CEO, MCX), alongside Rajeev Thakkar, made a compelling case for limiting access to F&O products based on income or net worth.
“If so many very small traders are coming in, just take them out of the market,” said Paranjpe. “If 80% of these 90% who are losing money are people in the ₹1–5 lakh income range, they should not be allowed to trade F&O at all.”
Mayank Bansal, a UAE-based hedge fund manager, “There should be some investment filters for people in the less than Rs 5 lakh bucket,” Bansal noted. “These are people who are losing more than they can afford — I’ve seen individuals with Rs 25 lakh annual incomes accumulate Rs 50 lakh in trading losses.”
3. Raise Minimum Ticket Sizes
Bansal suggested modelling the restrictions along the lines of the AIF (Alternative Investment Fund) framework, where a ₹1 crore minimum investment acts as a natural filter. Gupta also suggested raising the minimum ticket size for options trades. “Rather than killing weekly options, just make sure the minimum ticket size is high enough,” he said.
4. Limit Individual Exposures
On restricting the scope for market manipulation of the Jane Street kind, Gupta proposed imposing caps on the size of individual exposures, meaning maximum exposure allowed per entity — including intraday limits. Gupta said this was in consideration by Sebi earlier, however, the proposal was not implemented.
5. Recalibrate STT Across Segments
The experts agreed that STT on cash transactions were way too high while the same on options were way too low. Thakkar advocated for a relook at the Securities Transaction Tax (STT) structure to ensure better balance between cash, futures, and options markets. “Don’t make it prohibitively high for the cash segment while keeping it low for options,” he said. “It’s distorting volume flows.”
Paranjpe, however, strongly opposed transaction taxes as a deterrent. “Any kind of friction — like higher STT — reduces market efficiency by increasing the bid-ask spread. That’s not the solution.” He, however, concurred with other experts on reducing the STT on cash transactions.
6. Bridging the Knowledge Gap
While Bansal acknowledged that SEBI’s mandatory NISM certification for derivatives trading is a step in the right direction, he noted the steep learning curve remains a barrier. “No matter what test you conduct, many will still lose money — but education will at least help people better understand the risks,” he said. He also proposed stronger investor awareness programs to reinforce informed decision-making, even if it doesn’t eliminate the knowledge gap entirely.
The panel flagged an underappreciated risk: the extreme leverage embedded in options trading — sometimes up to 100x — especially on expiry days. In contrast, futures contracts offer leverage in the range of 5x to 10x. This asymmetry makes options particularly attractive — and dangerous — for retail investors seeking quick gains.
“This isn’t about paternalism,” said Gupta. “It’s about designing the ecosystem so that the rules reflect the risks. We need to ensure that people entering this market understand what they’re getting into.”
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