Derivative curbs: Don’t throw the baby out with the bathwater
Subscribe to enjoy similar stories. The explosion of trading in futures and options (F&O) has been a remarkable feature of India’s equity market. With a dominant 90% share of Indian market volumes, it dwarfs derivatives trading in all other major equity markets.
Indian F&O volumes accounted for 81% of global equity F&O volumes this April. While global as well as Indian institutions and proprietary trading houses account for a large part of F&O volumes, individual investors have taken to derivatives with gusto, accounting for a third of the volumes. The Securities and Exchange Board of India (Sebi) estimates a retail participant count of nearly 10 million.
Regulatory scrutiny has increased in lockstep with such retail ardour. Earlier this year, Sebi imposed additional margin requirements on certain F&O products. The Union budget imposed additional taxes on derivatives, increasing trading costs.
A Sebi paper estimated losses of ₹1.8 trillion for retail investors over the three years ended 2023-24, with ₹75,000 crore in 2023-24 alone. Such numbers have caused a minor storm, with political clamour growing to protect small investors. Also read: Nine out of 10 individual F&O traders lost money in FY24, Sebi study reveals The path to perdition is paved with good intentions, goes an old aphorism.
It holds true for capital markets too. Take risks. Macro-stability risks: India’s regulatory architecture tightly controls the single biggest macro risk of capital markets—leverage.
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