Amid concerns over rising volumes of short-term futures & options contracts, SEBI hints at extending their tenure
"As many experts have pointed out, our derivative market ecosystem is quite unique, in that on expiry days, comparable turnover in index options are often 350 times or more the turnover in the underlying cash market-–an imbalance that is obviously unhealthy, with several potential adverse consequences," he said in a speech to a CII-organised capital markets meet in Kolkata on Thursday.
Explaining his concerns further, Narayan, who joined Sebi from the private sector, said, "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. Unlike longer term derivatives, short-term derivative products such as expiry day trading in index options may detract from capital formation.'
He also spoke about the need to deepen the cash equities markets. "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," he said.
Sebi's own research shows that as much as 91% of individual traders incurred net losses trading in F&O in FY25, with their aggregate losses crossing Rs 1 trillion, up 41% from the losses in FY24 when 93% of them lost their money, according to a previous Sebi study released in last September.
This led to Sebi clamping down on F&O trade by increasing the ticket size and the upfront margins and limiting the index expiries to once a week among others.
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