SEBI set to deepen equity mkt; derivatives a cause of concern
'Very short-term derivatives continue to dominate equity derivative volumes, especially expiry-day index options. This is an imbalance that is obviously unhealthy and may have potential for adverse consequences,' said Sebi Whole-Time Member Ananth Narayan.
He was addressing the 11th Capital Markets Conclave organised by the CII.
'I would strongly endorse the view that, towards this end, we must look for 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. We need constructive engagement from all stakeholders to achieve this,' he said.
Citing the market regulator's own research, Narayan pointed out that 91 per cent of individual traders in futures and options (F&O) incurred net losses in FY25 - collectively losing over Rs 1 lakh crore - funds that could otherwise contribute to responsible investing and capital formation.
He highlighted that the Indian derivatives market is unique, with expiry-day index option turnover often exceeding the cash market by as much as 350 times.
'Unlike longer-term derivatives, these short-term products contribute little to capital formation and may actually add to market volatility,' Narayan said.
While acknowledging that exchanges, brokers, and other intermediaries have significant revenue dependence on such trading volumes, the Sebi official questioned the sustainability of this trend.
'Is all this at all sustainable?' he asked.
Sebihas already introduced regulatory measures in October 2024 and May 2025 aimed at curbing excesses in this space, which Narayan said are showing some early signs of moderation. However, he emphasised the need for continuous engagement with stakeholders to ensure that both capital formation and market health are protected.
'We must look for ways to deepen our cash equities markets while improving the quality of derivatives through longer-tenure products,' Narayan said, urging industry collaboration.
Responding to a question, he underscored the advantages of listing, particularly in the current environment where valuations are 'very, very attractive. Going public can unlock substantial value and enable companies to raise capital in a 'very meaningful manner,' acting as a 'force multiplier' for achieving scale and growth.
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