SEBI committee proposes stricter measures to curb derivatives volume; raises lot size to ₹20-30 lakh: Report

The Working Committee on Futures and Options has proposed several measures to control the rapid increase in derivatives trading volume. According to a report by Moneycontrol, the key recommendations include raising the minimum lot size of derivative contracts from ₹5 lakh to a range of ₹20 lakh- ₹30 lakh, restricting weekly options to one expiry per stock exchange per week, and reducing the number of strike prices for options contracts. These changes aim to address the excessive speculation in the derivatives market, sources told Moneycontrol.

Last month, the Securities and Exchange Board of India (SEBI) established this expert committee to tackle the issue of high retail participation driving excessive speculation, it said.

Among the 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, said the report.

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, it added.

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

The surge in derivatives volume in India has raised concerns. Although SEBI Chairperson Madhabi Puri Buch has stated that the increase does not pose a systemic risk due to a robust margining system, the social consequences of high retail participation in derivatives trading are troubling, noted the report.

It 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 says.

In response to a query from Moneycontrol, SEBI Chairperson Buch 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," she stated at a press conference following the last Board Meeting on June 28.

According to SEBI data, the overall derivative turnover has soared from ₹210 lakh crore in FY18 to ₹500 lakh crore in FY24. The Futures and Options (F&O) segment has seen growing retail investor participation, increasing by over 40 percent from 65 lakh in FY23 to 96 lakh in FY24. Individual participation in index options has also surged, rising from 2 percent in FY18 to 41 percent in FY24, informed the report.