F&O action: Can new Sebi rules tame wild bulls of the derivatives market?
Subscribe to enjoy similar stories. Picture this: A financial markets trainer takes to the stage, looking at a large screen of flickering prices, and then immediately breaks into a dance, with a couple of hundred people in the audience joining him in an apparent money-making festival. If you thought this is a scene from a movie, it’s not.
To call it a one-off celebration would also not do any justice to the large-scale participation that India’s equity markets are witnessing—and how! The frenzy in Indian markets since the pandemic-induced asset slump has been unparalleled. Traders and investors, energized by elevated levels of excitement, are pouring crores into them (and into certain segments), throwing caution to the wind. On one hand, domestic mutual funds witnessed inflows for the 43rd straight month in September, sending a clear message that investing is truly being democratized.
On the other, exponential growth in derivatives trading by retail traders has set off alarm bells everywhere, with regulators, including the central bank, expressing serious intent to rein back animal spirits. Also read: SEBI increases position limits for trading members in index F&O contracts That is not without reason. Average daily volumes so far this year have exploded to $4.6 trillion from $180 billion in 2019, an increase of about 26 times in merely six years.
A whopping 97% of this activity is concentrated in the options market, with the influx of retail traders stoking fears of excessive leverage and systemic risk. The mania has been so excessive that India’s derivatives-to-cash market volume ratio stands at 280 times. Additionally, 102 billion derivatives contracts have been traded this year in India, compared to 9 billion in the
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