Sebi Pushes for Stronger Derivatives Framework

In an effort to strengthen India’s derivatives market, the Securities and Exchange Board of India (Sebi) is exploring new measures to reduce excessive short-term speculation and promote long-term stability. Ananth Narayan, a Sebi whole-time member, emphasized the potential benefits of extending the tenure of futures and options (F&O) contracts to curb market volatility.

Short-Term Trading Raises Red Flags

Narayan pointed out that the current F&O market is largely dominated by short-term trades, a trend that is increasingly worrying for both regulators and investors.

“A lot of the activity in the F&O space is short-term in nature, and that’s not necessarily healthy for the overall ecosystem,” he noted.

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Retail Participation Under the Microscope

One of the key concerns for regulators is the growing exposure of household savings to speculative trading in the F&O segment. A recent Sebi study revealed that a significant number of retail traders are incurring heavy losses, highlighting the need for better safeguards.

New Rules to Encourage Responsible Trading

To address these risks, Sebi has already rolled out measures aimed at discouraging short-term speculation. The broader goal is to shift the market towards more responsible and long-term practices that align with fundamental trends rather than fleeting price movements.

Balancing Innovation with Investor Protection

While there is some resistance from industry stakeholders over the potential impact on trading volumes and revenue, Sebi remains committed to building a sustainable, investor-friendly F&O market. Longer-tenure contracts, it believes, could be a key part of that solution.

Ongoing Dialogue with Stakeholders

Sebi is expected to continue its dialogue with industry participants to develop a well-rounded framework that balances market development, innovation, and investor protection in the rapidly evolving F&O space.

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