Discover How SEBI’s 2024-25 regulations are reshaping Indian options trading. From F&O restrictions to retail losses, explore impacts on markets & traders.
The Indian options trading landscape, once a vibrant hub for retail traders, is undergoing a profound transformation. Fueled by mobile apps, gamified interfaces, and surging retail participation, derivatives trading has faced intense regulatory scrutiny in recent times. The Securities and Exchange Board of India (SEBI), alarmed by systemic risks and significant retail losses, has introduced a series of measures to restore stability. However, as regulations tighten, concerns grow over market distortions, reduced liquidity, and the potential shift of traders to unregulated platforms.
SEBI’s Grim Revelation: 93% of Retail Traders Lose Money
A SEBI study covering FY22 to FY24 revealed a stark reality: 93% of individual futures and options (F&O) traders incurred net losses, with a collective wealth erosion of ₹1.81 trillion. Only 7.2% of traders achieved profits. Notably, over 75% of these traders earned less than ₹5 lakh annually, underscoring the penetration of high-risk instruments among economically vulnerable groups. The proportion of young traders (under 30) also surged from 31% in FY23 to 43% in FY24, reflecting a growing demographic of risk-takers.
Regulatory Barrage: Key Measures Implemented and Underway (As of April 2025)
SEBI has rolled out a multi-pronged campaign to address risk, speculation, and leverage:
Contract Size Hike: Effective November 21, 2024, SEBI increased the minimum contract size for index derivatives to ₹15–20 lakh, up from ₹5–10 lakh, to deter undercapitalized retail traders.
Weekly Expiry Restriction: From November 21, 2024, only one benchmark index per exchange (e.g., Nifty for NSE, Sensex for BSE) can offer weekly options contracts, reducing speculative opportunities by limiting weekly expiries to six per month.
Stricter SME IPO Norms: Issuers must demonstrate a minimum operating profit of ₹1 crore in at least 2 of the last 3 fiscal years. Promoter Offer for Sale (OFS) is capped at 20%, and proceeds cannot be used to repay loans to related parties.
Higher Margin Requirements: A 2% Extreme Loss Margin (ELM) on expiry days and the removal of calendar spread margin benefits, effective February 10, 2025, impact intraday margin strategies, particularly for option sellers.
Upfront Premium Collection: As of February 1, 2025, brokers must collect the entire option premium upfront, reducing leverage and preventing excessive short positions.
Intraday Monitoring: Starting April 1, 2025, exchanges conduct multiple daily assessments of intraday positions to identify and mitigate potential risk breaches in real-time.
Short-Selling Restrictions on Non-F&O Stocks (Implemented): In January 2024, SEBI introduced stricter regulations on short selling, prohibiting naked short selling and imposing stringent disclosure and delivery requirements. These measures effectively limited short selling in non-F&O stocks, aiming to prevent manipulation and volatility in small-cap counters.
Derivatives Eligibility Norms Tightened (Proposal): SEBI is considering a proposal to reduce F&O-eligible stocks from 182 to approximately 157, based on criteria like average daily turnover, market cap, and impact cost, though this remains under review.
Market Impact: Volatility and Liquidity Challenges
Industry sources report a 20–37% drop in options trading volumes in December 2024 following these rules. While SEBI aims to reduce retail overexposure and systemic risk, market participants warn that traders may turn to unregulated “Dabba” platforms operating outside SEBI’s oversight. Reduced participation—particularly by retail traders—has led to thinner order books, wider bid-ask spreads, and increased short-term volatility. The India VIX has exhibited erratic spikes on low-volume days, especially around expiry, suggesting that SEBI’s efforts to tame volatility may have inadvertently intensified abrupt market swings.
The Dilemma: Balancing Safety and Accessibility
SEBI’s actions address undeniable risks, as evidenced by the ₹1.81 trillion loss. However, restricting access without offering educational alternatives or regulated low-risk instruments risks alienating a generation of financially curious young Indians, potentially stifling market participation.
Looking Ahead: Navigating a Post-Crackdown Market
While SEBI’s data-driven measures are justified, the absence of parallel reforms in investor education, micro-derivatives, or risk-aware robo-advisory models leaves a gap. To foster a resilient trading ecosystem, there is an urgent need to:
Promote option trading education and risk awareness.
Introduce lower-sized, capped-loss derivative products.
Enhance transparency in brokerage fees and leverage practices.
- Ensure better hedging mechanisms or methods.
- Promote Long term expiry liquidity (yearly expiries).
India stands at a crossroads in its retail financial journey. SEBI’s crackdown responds to market excesses, but its success hinges on measured execution, inclusivity, and tech-savvy solutions. For now, SEBI has prioritized discipline, but building investor trust and fostering responsible participation remain critical challenges.
