Over 90% F&O traders losing, NSE's derivative contracts still 40x the next exchange, says SEBI's Ananth Narayan

MC Global Wealth Summit

More than 90% of the traders of derivative contracts, especially those trading in index options, were incurring losses, said Ananth Narayan, Whole-Time Member of the Securities and Exchange Board of India (SEBI). He was speaking at a panel discussion during the Moneycontrol Global Wealth Summit in Mumbai on March 7.

The market regulator has been sounding cautious over the surge in F&O volumes, and has taken implemented some changes in the derivatives segment. 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 (0DTE). The new norms took effect on November 20, 2024, but their impact has been felt from the starting of December.

Narayan said index options trading volumes declined by 23 percent on-year in December, January, and February. However, compared to two years ago, volumes have still grown by 15%. "This decrease in index options activity has not impacted the overall derivatives market. We are satisfied with this outcome," Narayan added.

Read More: Full transcript of Sebi chief Tuhin Kanta Pandey's address at Moneycontrol GWS 2025

"We will be watchful of incoming data. Our regulatory intent is clear. There are plenty of metrics that have shown that the size of our derivatives market in relation to our market cap has been extraordinarily high compared to global standards. That’s why we said we have to take steps... we found that 89 percent of F&O investors had losses and 93 percent of all trades, mostly in index derivatives, were losing money. People who lost two years in a row continued to trade in the third year as well. Options trading was becoming a ‘national pastime’, and we needed to use our national resources for a better purpose," Narayan said, arguing in favour of the restrictions.

Narayan added that options activity in the derivatives market, especially on expiry days, must be reduced and that SEBI has taken recent steps to curb 'overtrading.'

"Even today, the total number of contracts traded on NSE is 40x higher than the next best exchange," he said.

Index options derive their value from changes in well-known indices like Sensex, Nifty, Bank Nifty, and Nifty Financial Services in India. Traders can utilise index options for Nifty 50 and Nifty Bank, providing an alternative to taking positions on individual stocks.

The new rules for F&O trading include increasing the minimum contract value for index derivatives to Rs 15 lakh, limiting weekly expiries to one per exchange, and imposing an Extreme Loss Margin (ELM) for short options contracts.