The Securities and Exchange Board of India’s (SEBI) stringent guidelines in the futures and options (F&O) segment haven’t served as a deterrent for retail investors who trade in index options, as their activity remains at elevated levels. In fact, it has grown marginally.
According to NSE data, the category had 35.7% share in the premium turnover of index options in the financial year ended March 2025, compared to 35% in FY24 and 27% in the pre-Covid financial year 2019.
Individuals’ premium turnover on NSE in the last financial year was Rs 48.46 lakh crore, only 0.2% lower than FY24, but more than 21% higher than the previous year. In the financial year 2020, the turnover was just Rs 3.1 lakh crore.
Sources in the know said that the market regulator has been monitoring the activity in index options and is currently examining the feasibility of further measures, people aware of the matter told FE.
The main concern is the large build-up particularly on the expiry day, despite an additional extreme loss margin of 2%.
The revised guidelines for F&O segment were introduced in November 20, 2024 and implemented in phases till February.
In its July 2024 consultation paper, the regulator had noted that for FY 2023-24, 9.2 million unique individuals and proprietorship firms traded in index derivatives segment of NSE and cumulatively incurred a trading loss of Rs 51,689 crore. Of these, just 1.4 million investors made net profit, meaning approximately 85 out of 100 made a net trading loss.
After this, Sebi had come up with a slew of measures in October due to change in markets with increased retail participation, offering of short tenure index options contracts, and heightened speculative trading volumes in index derivatives on expiry day. These included upfront collection of option premium from options buyer, removal of calendar spread treatment on the expiry day, intra-day monitoring of position limits, contract size for index derivatives, rationalisation of weekly index derivatives products and increase in tail risk coverage on the day of options expiry.
According to UR Bhatt, director at Alphaniti Fintech, retail investors that had entered the derivatives market during Covid have graduated to a larger ticket size so the definition of retail needs to be revised.
Vinit Bolinjkar, head of research at Ventura Securities, said that Sebi does not want individual investors to lose money to large international players but risk-taking is the nature of the investment community. He added that higher transaction costs, eligibility based on net worth of the individual, and higher margins are some of the things that can be done.