Despite tightening of regulations in equity index derivatives, the trading activity of individuals in the segment continues to remain high. Concerned over higher participation of individuals in the segment, the Securities and Exchange Board of India (SEBI) is re-examining the trading activity, sources said.
It could be noted that in October 2024, the Sebi had announced a set of six measures to strengthen the equity index derivatives, also known as equity futures & options (F&O), framework, which included recalibration of contract size for equity derivatives, rationalisation of weekly index derivatives products and increase in tail risk coverage on the day of options expiry. The new measures were announced following an exponential surge in trading volumes in the segment, with the majority of investors incurring losses.
Post the new set of measures announced last year in the segment, Sebi analysed the trading activity in the equity derivatives segment for the period from December 2024 to March 2025.
“Number of individuals trading in equity derivatives is down 12 per cent year-on-year (YoY) and up 77 per cent from two year ago,” as per the findings.
The Sebi analysis showed that on a year-on-year basis, index options volume of individuals is down by 5 per cent (in terms of premium) and 16 per cent in notional terms. However, compared to two year ago, index options volume is up by 34 per cent (in premium) and 99 per cent (in notional terms).
“Sebi continues to monitor the activity and will re-examine the trading activity of individuals in index options from an investor protection and systemic stability perspective,” said a source.
The source said even after tightening of rules last year, India continues to see the highest level of trading in the equity derivatives segment, particularly in index options, in relation to the size of its cash market. It could be noted that Sebi, in its efforts to enhance trading convenience, strengthening risk monitoring and investor protection, had proposed a set of measures in February this year, aimed at aligning risk metrics in the derivatives segment with actual market exposure. The consultation paper recommended moving to a Future Equivalent (FutEq) measure to measure positions in the market. According to sources, the public feedback on the proposals recommended by the consultation paper has been largely positive. The regulator has made some changes in the proposals after getting the feedback from the public.
The Sebi has relaxed the position limits for index options and index futures to Rs 1,500 crore on a net basis and Rs 10,000 crore on a gross basis (each side), with no intra-day limit, the sources said. This will enable the market participants to carry out their activities smoothly.
“Concomitantly, intra-day and end-of-day (EOD) surveillance systems would be bolstered to ensure that any manipulative activities are appropriately addressed,” sources said.
The regulator is going to continue monitoring the activity in index options and, if warranted, would be examining the feasibility of any further actions in this regard, after due consultations with market participants, sources said.
