SEBI whole-time member Ananth Narayan on July 17 expressed concerns over huge volume in short-term F&O contracts and also said that the regulator would look improve the quality of the F&O market "by extending the tenure and maturity of the products and solutions on offer".
"As many experts have pointed out, our Indian derivative market ecosystem is quite unique, in that on expiry days, comparable turnover in index options are often 350 times or more the turnover in the underlying cash market –an imbalance that is obviously unhealthy, with several potential adverse consequences," said Narayan at 11th Capital Markets Conclave of CII in Kolkata.
"Research has suggested that expiry day option trading increases market volatility and could lead to noise trading that may potentially undermine confidence in price formation. Unlike longer term derivatives, short-term derivative products such as expiry day trading in index options may detract from capital formation," added Narayan.
Narayan said the market regulator must look to deepen cash equities markets.
"We must look for further ways to further deepen our cash equities markets, even as we look to improve the quality of our derivatives market by extending the tenure and maturity of the products and solutions on offer," said Narayan.
SEBI’s own updated research shows that 91% of individual traders incurred net losses trading in F&O in FY25, with their aggregate losses crossing Rs 1 lakh crore. "This is a large sum of money that could have otherwise gone towards responsible investing and capital formation," said Narayan.
Clearly indicating that the regulator is uncomfortable with the volume of weekly F&O contracts, he said that SEBI is aware of the potential concerns of exchanges, brokers, and other intermediaries, as their revenues depend heavily on the volumes of these weekly contracts. However, he also emphasized the need to reconsider whether such a trend is sustainable. He highlighted the steps SEBI has taken in the past to curb the volume of weekly contracts. October 1 last year, SEBI issued a circular and tightened the rules—such as limiting weekly expiries to only one benchmark index, increasing lot sizes, mandating upfront collection of premiums, removing margin benefits on expiry day, introducing intraday monitoring of position limits, and increasing margins near contract expiry.
In May 2025, SEBI announced another set of measures to address the issue of rising equity derivatives volumes. These include tracking future-equivalent open interest, linking the market-wide position limit (MWPL) to cash volumes, allowing position creation for single stocks during the ban period if it reduces risk, intraday monitoring of market-wide position utilization, fixing position limits for index futures and options, and establishing new criteria for derivatives on benchmark indices.
Ananth Narayan also called for deepening the cash market. He said, “We must look for further ways to deepen our cash equities markets, even as we strive to improve the quality of our derivatives market by extending the tenure and maturity of the products and solutions on offer.”
Narayan concluded by stating that all stakeholders need to engage in constructive dialogue on the issue.
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