Capital markets regulator Sebi on Thursday called for constructive discussion among stakeholders on the derivatives market amid high investor losses. The regulator is keen to improve the quality of the derivatives market by extending the tenure and maturity of such contracts.
Speaking at an event organised by the CII in Calcutta, Sebi whole-time member Ananth Narayan G said the current trends in the equity derivatives ecosystem have warranted a closer look and require “ongoing constructive debate and work”.
“Sebi’s own updated research shows that 91 per cent of individual traders incurred net losses trading in futures and options in FY25, with their aggregate losses crossing ₹1 lakh crore. This is a large sum of money that could have otherwise gone towards responsible investing and capital formation,” said the Sebi WTM.
“We recognise the potential concerns of market infrastructure institutions, brokers, and other intermediaries, whose revenues may depend heavily on these short-term derivative volumes. But we must ask ourselves collectively — is all this at all sustainable?” he said.
Research from Sebi shows that the average daily turnover in the equity derivatives segment has increased from ₹92,724 crore in FY20 to ₹2,63,832 crore in FY25, with a five-year compounded annual growth rate of 23 per cent, almost similar to the 25 per cent growth rate in the cash segment in the same period.
The regulator is concerned about short-term derivatives dominating the equity derivatives volume, and Narayan said that, unlike longer-term derivatives, short-term derivative products such as expiry day trading in index options may detract from capital formation.
Expiry day trading involves investors buying and selling options contracts on their last day of trading, aiming to profit from heightened volatility and price swings.
“We must look for ways to further deepen our cash equities markets, even as we look to improve the quality of our derivatives market by extending the tenure and maturity of the products and solutions on offer. We need constructive engagement from all stakeholders to achieve this,” Narayan said.
He added that over the past year, in consultation with all stakeholders, Sebi has taken steps to address the issues in the derivatives market through regulatory changes introduced in October 2024 and May 2025.
Earlier this month, the market regulator found US hedge fund Jane Street guilty of manipulating indices by taking bets in the cash, futures and options markets simultaneously to make gains. Sebi barred the hedge fund from accessing the market and impounded over ₹4,843 crore in gains.
However, following the regulator’s action, derivatives trading volumes further fell, prompting brokerages to lower the ratings for stock exchanges, resulting in shares of the BSE and NSE taking a hit.
Risk awareness
Sebi is undertaking a survey covering 90,000 households to understand the risk awareness among investors.
“The findings of this survey will enable us to design a large-scale targeted, demography-sensitive outreach programme, delivering the right messages, in the right languages, through the right media,” he said.