Will continue to monitor F&O with an aim to ensure investor protection and market stability, says SEBI source

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Post the strongly worded 105-pages long order against global high frequency trading major Jane Street, the Securities and Exchange Board of India (SEBI) has said that it will continue to monitor the derivatives segment with an aim to ensure investor protection and market stability, said a regulatory source.

"We will continue to monitor Indian F&O markets from the perspective of ensuring investor protection, market stability, and support for sustained capital formation," said a SEBI source.

"While retail participation in index options trading on expiry day has moderated somewhat in recent times, around 90% of them continue to lose money. There appears to be still too much of concentration in short-term expiries and short-term trading," added the source wishing not to be named.

In an analysis released in September 2024, SEBI said that individual traders in the futures and options (F&O) market suffered a staggering Rs 1.8 lakh crore in aggregate losses over the past three fiscal years, with nearly 93 percent of more than 1 crore investors, or nine out of 10 traders, incurring average losses of Rs 2 lakh each.

Further, the top 3.5 percent of loss-makers -- about 4 lakh traders -- suffered an average loss of Rs 28 lakh each over the three years from FY22 to FY24, inclusive of transaction costs. Only one percent of the individual traders managed to earn profits exceeding Rs 1 lakh, after adjusting for transaction costs, found the SEBI analysis.

Meanwhile, an earlier study published by SEBI in January 2023 showed that 89 percent of individual equity F&O traders lost money in FY22.

Interestingly, the capital market watchdog is expected to release an updated analysis on this subject soon and the share of loss-making investors is likely to remain over 90 percent.

Meanwhile, the SEBI source further said that extending maturities and nudging more long-term trading, hedging, and investments would be ideal for our ecosystem.

The SEBI study had also found that in sharp contrast, proprietary traders and foreign portfolio investors (FPIs) as a category booked gross trading profits of Rs 33,000 crore and Rs 28,000 crore, respectively, in FY24 (before accounting for transaction costs).