F&O: Sebi finds individuals’ trades in index options not declined as much as expected, may take more actions

Mumbai: Sebi has observed that individuals’ activity on index options in the derivatives segment has not declined as much as expected, and it will re-examine this activity and take further actions if required, sources have said.

The capital markets regulator examined activity in index options between December 2024 and March 2025 and found that while there has been some drop on a year-on-year basis, the activity is much higher than two years ago.

It can be noted that from November 2024, Sebi introduced certain restrictions on the futures and options segment to limit individual activity, as data pointed to over 90 per cent of the trades by individual investors ending up in losses.

An analysis of the data for the four months suggests that the number of individuals trading in equity derivatives is down 12 per cent year-on-year, but up 77 per cent when compared to the two-year-ago period, or between December 2022 and March 2023, the Sebi has found.

On the index options front, which is the most problematic for the regulator because of high speculation on expiry days, individuals’ trades are higher when compared to two years ago.

The index options volume of individuals is down 5 per cent on premium terms and 16 per cent on notional terms, but up 34 per cent and 99 per cent on premium and notional terms, respectively, when compared to two years ago.

“Sebi will re-examine the trading activity of individuals in index options from an investor protection and systemic stability perspective,” a source said.

It has been noticed that despite the measures taken last year to contain speculative overtrading in index options, particularly on expiry day, the activity is high, the source said.

“Sebi 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,” the source added.

It can be noted that when it first took action on the F&O segment, the driving point was the high number of trades in which investors were losing money, and the moves involved months of analysis, sharing of draft proposals and receiving public responses before any changes were implemented.

The data has also revealed that index options volume is down 15 per cent year-on-year in premium terms and 34 per cent in notional terms, but up 11 per cent in premium terms and 47 per cent in notional terms when compared to the period two years ago.

The source stressed that even after the actions, India continues to lead globally in derivatives trading volumes, and added that there is a need to match the rapid growth with “commensurate improvements in risk monitoring”. Sebi aims to refine how it assesses exposure, mitigate manipulation risks and reduce the unintended disruptions, the source said.

The consultation paper on Enhancing Trading Convenience and Strengthening Risk Monitoring in Equity Derivatives, released in February this year, seeks to ensure that blunt regulations should not serve as a substitute for surveillance and enforcement by regulators.

It proposes moves to exercise sharper control over possible concentration and manipulation risk by enhanced surveillance and enforcement rather than setting regulatory limits, the source said, adding that the latter can stifle market making.