Need for a deeper cash equities market, longer tenure F&O contracts: Sebi official
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Narayan pointed out that India's equity derivatives market is heavily skewed towards ultra-short-term trades, particularly expiry-day index options. He warned that such activity, unlike longer-duration contracts, may hinder meaningful capital formation."Research has suggested that expiry day option trading increases market volatility and could lead to noise trading that may potentially undermine confidence in price formation," Narayan said."I would strongly endorse the view that towards this end, we must look for further 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," the WTM said.Also Read: India has staggering 80% market share in global index, stock options: Uday Kotak In its latest study, Sebi highlighted that 91% of individual traders incurred net losses trading in F&O in FY25, with their aggregate losses crossing Rs 1 lakh crore. This was despite multiple measures taken by the market watchdog to curb speculative trading in the derivatives market."This is a large sum of money that could have otherwise gone towards responsible investing and capital formation," Narayan said in his speech.The Sebi official also highlighted the uniqueness of the Indian derivative market ecosystem, where on the expiry days, comparable turnover in index options is often 350 times or more the turnover in the underlying cash market.He called this imbalance "obviously unhealthy" with several potential adverse consequences. Ananth Narayan acknowledged that the regulatory changes introduced in October 2024 and May 2025 have resulted in the moderation of the trends.Also Read: Shankar Sharma slams high options trading costs in India, calls it 'frightfully expensive He emphasised that it was beyond doubt that derivatives and speculative trades are vital for price discovery, hedging, and ensuring market depth.
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