Sebi proposals seek orderly conduct in F&O market

Indian equity markets witnessed an unprecedented surge in derivatives trading over the past five years, becoming the world's largest derivatives market with a notional turnover of $6.4 trillion a day and annual option premiums of $2.2 trillion in 2024.

- ASHISH GUPTA

Indian equity markets witnessed an unprecedented surge in derivatives trading over the past five years, becoming the world's largest derivatives market with a notional turnover of $6.4 trillion a day and annual option premiums of $2.2 trillion in 2024. The proportion of derivatives to cash market volumes in India is also the highest globally.

Market regulator Securities and Exchange Board of India (Sebi) in July 2024 proposed the first set of measures to contain this unfettered growth of derivatives, particularly among retail participants who were incurring high losses (90 per cent, according to a Sebi study). These measures included: (1) Limiting the number of weekly expiries to one per exchange, (2) Raising the minimum contract size, (3) Upfront collection of premium, and (4) Removal of calendar spread benefits on expiry day.

These measures started to come into effect from November 2024, and moderation in some of the excesses is visible.

1. The number of expiries in a month is down from 20 to eight.

2. The sachetisation of index options has been arrested, with the average premium per index option increasing to 3,000 in February 2025 from 1,300 in November 2024. This has come about due to an increase in the minimum lot size and, more importantly, a reduction in the share of expiry day options. The share of zero-day-to-expiry options trades is now at 50 per cent of volumes compared to 70 per cent earlier, and 20 per cent of total premiums versus 40 per cent in November 2024.