Sebi to Reassess Index Options Trading as Speculative Activity Persists Despite Curbs

Sebi to Reassess Index Options Trading as Speculative Activity Persists Despite Curbs​

Mumbai, May 11 – The Securities and Exchange Board of India (Sebi) is preparing to reassess trading activity by individuals in index options, after recent data revealed that speculative behavior in the equity derivatives segment, particularly on expiry days, continues at elevated levels despite regulatory measures introduced in late 2024.

Sources familiar with the matter indicated that Sebi will conduct a fresh review from the lens of investor protection and systemic stability. The move follows a four-month analysis of index options trading from December 2024 to March 2025.

Volume Down Year-on-Year but Up Sharply from 2022​

While there has been a moderate year-on-year decline in activity—individual trader participation in equity derivatives is down 12 percent—the overall level of trading remains significantly higher than in the same period two years ago. Sebi data reveals a 77 percent increase in individual participation compared to December 2022 to March 2023.

On the index options front, which is of particular concern to the regulator due to the surge in expiry-day speculation, the volume of trades by individuals saw a slight year-on-year dip—5 percent in premium terms and 16 percent in notional value. However, when compared with two years earlier, the increase is stark: up 34 percent in premium terms and 99 percent in notional value.

Sebi’s Continued Focus on Derivatives Risk​

Sebi had earlier introduced curbs in November 2024 following findings that more than 90 percent of individual investors were incurring losses in futures and options (F&O) trading. The steps taken were based on extensive data analysis and followed a public consultation process.

Despite those measures, Sebi remains concerned about the sustained high volumes and intends to explore additional safeguards. “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,” a source stated.

Refining Risk Monitoring Amid Market Leadership​

India continues to lead globally in derivatives trading volume, and Sebi acknowledges that the growth trajectory must be accompanied by robust risk assessment mechanisms. The regulator is aiming to improve how exposure is evaluated, address manipulation risks, and prevent unintended market disruptions.

In February, Sebi issued a consultation paper titled Enhancing Trading Convenience and Strengthening Risk Monitoring in Equity Derivatives. The paper advocates enhanced surveillance and enforcement measures over rigid regulatory caps, which could hinder legitimate market-making activities. Public feedback on the paper has been largely positive, and Sebi has already made some adjustments based on stakeholder inputs.

Position Limits Relaxed to Support Market Participation​

In a bid to support smooth market operations, Sebi has relaxed position limits in index options. Traders can now hold positions up to Rs 1,500 crore on a net basis and Rs 10,000 crore on a gross basis, without any intraday limits, sources said.

As Sebi continues to fine-tune its regulatory approach, the balance between market growth and investor safety remains central to its oversight strategy.