Equity F&O Derivatives: Towards a Sustainable Journey

There was a time when trading in the Indian capital market was highly fragmented, scattered across 21 regional stock exchanges operating in various tier-II cities along with the metropolitan centres.

- Saptarshi Roy Bardhan

Volumes were small, participants were few, and institutional investments came largely from a handful of domestic financial entities and corporations. Settlement was not unified, and deliveries were made in physical share certificates. This left scope for price arbitrage and "carry forward" trades, financed by badla financiers who charged interest. Unsurprisingly, the market was fraught with risks associated with settlement failures.

The formation of SEBI in 1992 marked a turning point. With the advent of electronic trading and settlement, and later the introduction of stock and index derivatives, the parallel badla market was dismantled. Over the years, volumes grew exponentially, driven by retail participation, foreign funds, and domestic institutions. While this shift helped the market achieve greater maturity, it also brought in a new breed of retail investors, many with a "casino" mindset seeking quick profits.