SEBI committee proposes stricter measures to curb derivatives volume: Report

According to a recent report by Moneycontrol, the key recommendations of the SEBI's committee include increasing the minimum lot size of derivative contracts from Rs 5 lakh to a range of Rs 20 lakh to Rs 30 lakh, restricting weekly options to one expiry per stock exchange per week, and reducing the number of strike prices for options contracts.

Moneycontrol reported, citing its sources, that these changes aim to address the excessive speculation in the derivatives market.

Last month, SEBI, the regulatory body for securities and commodity market in the country, established this expert committee to tackle the issue of high retail participation driving excessive speculation, as per reports. 

According to the report, among the SEBI committee's suggestions, two primary measures could significantly impact trading volumes if implemented: the substantial increase in contract size, which would make trading derivatives unaffordable for small-ticket traders, and the limitation on weekly expiries, which would reduce trading opportunities.

Other proposals include limiting strike prices, requiring upfront collection of option premiums from buyers, intra-day monitoring of position limits, and increasing margin requirements closer to expiry, as per the Moneycontrol report.

These recommendations will be reviewed by the Secondary Market Advisory Committee before a final decision is made, the report added.

However, SEBI Chairperson Madhabi Puri Buch has stated that the surge in derivatives volume in the country does not pose a systemic risk due to a robust margining system, the social consequences of high retail participation in derivatives trading are troubling, as per the Moneycontrol report.

According to the report, the committee further observed that anecdotal evidence suggests many individuals are borrowing money to trade options, hoping for quick profits, despite SEBI studies showing that nearly 90 percent of retail traders lose money on options bets.

Market experts argue that most weekly contracts are used for speculation rather than for hedging purposes, the report added.

The SEBI chairperson, in response to a query from Moneycontrol, expressed openness to removing any derivative products if recommended by the committee.

"We are entirely data-driven. If that’s what needs to be done, and that’s what the committee recommends, and we agree with the logic, we will do it," Buch said at a press conference following the last Board Meeting on June 28.

Moneycontrol reported, quoting the SEBI data, that the overall derivative turnover has soared from Rs 210 lakh crore in FY18 to Rs 500 lakh crore in FY24, while the Futures and Options (F&O) segment has seen growing retail investor participation, rising by over 40 percent from 65 lakh in FY23 to 96 lakh in FY24.

Individual participation in index options has also surged, increasing from 2 percent in FY18 to 41 percent in FY24, according to the report.