Sebi, the capital market regulatory body in India, has observed that the activity of individuals in index options in the derivatives segment has not come down as much as expected post the measures taken earlier last year and will review the activity and take further action if necessary. According to a PTI report, the capital markets regulator has examined the activity of index options between December 2024 and March 2025 and found that despite a slight decline year-on-year, the activity was much higher than two years ago.

It is to be noted that from November 2024, Sebi has introduced certain restrictions in the futures and options sector to restrict individual activity as data suggests that more than 90 per cent of trades by private investors end in losses.

Sebi said that while the number of individuals trading in equity derivatives has declined by 12 per cent year-on-year, there has been a 77 per cent increase compared to the period two years ago or between December 2022 and March 2023.

In terms of index options, the most problematic for regulators due to high speculation on expiration days, more people are trading than two years ago.

The volume of individual index options decreased by 5 percent in terms of premium and 16 percent in terms of notional, but increased by 34 percent and 99 percent in terms of premium and notional, respectively, compared to two years ago.

"Sebi will re-examine the trading activity of individuals in index options from an investor protection and systemic stability perspective," PTI quoted citing a source.

The sources said that despite measures taken to curb speculative overtrading of index options last year, they observed that activity was high, especially on the day of expiration.

"Sebi is going to continue monitoring the activity in index options, and, if warranted, would be examining the feasibility of any further actions in this regard," the source added.

Note that the primary reason for this is the high number of trades in which investors lost money when the F&O department first took action, and these steps included months of analysis, sharing draft proposals and seeking public feedback before implementing any changes.

Compared to the period two years ago, the data showed a 15 per cent year-on-year decline in index options and a 34 per cent notional decline in premiums.

Despite these measures, the source stressed that India continues to be the global leader in derivatives trading volumes and that rapid growth needs to be matched with a “commendable improvement in risk monitoring”.

The source said that Sebi aims to improve how it assesses exposure, reduce the risk of manipulation and reduce unexpected disruptions.

The discussion paper on improving trading facilitation and strengthening risk monitoring in equity derivatives, published in February this year, seeks to ensure that blunt rules should not act as a substitute for oversight and enforcement by regulators. It proposes to apply sharper controls on potential concentration and manipulation risks through better surveillance and enforcement rather than setting regulatory limits, the source said, as the latter could stifle market making.

Public feedback on the proposals in the consultation paper was largely positive and some changes were also made to the proposals based on the comments received, the source said.

Position limits on index options have been relaxed to Rs 1,500 crore on net basis and Rs 10,000 crore on gross basis, so that market participants can conduct their business smoothly.

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(With Inputs From PTI)