KOLKATA/MUMBAI: To improve the quality of India’s derivatives market, the tenure and maturity of futures & options (F&O) contracts should be extended, a top Sebi official said on Thursday.Sebi whole-time member Ananth Narayan said that very short-term derivatives products currently dominate domestic equity derivative volumes — an ‘unhealthy’ trend that warrants reconsideration. Currently, Indian exchanges offer F&O products with a maximum maturity of three months. In contrast, several global markets provide F&O contracts with maturities of up to one year.While data show that the Indian market is among global leaders in F&O trading volumes, regulators and govt remain concerned that household savings are being channelised into speculative trading, rather than toward capital formation.

Savings flow into speculative trades

“There is no question that derivatives and indeed, speculation are vital for price discovery, hedging, and ensuring market depth. But certain trends in our equity derivatives ecosystem have warranted a closer look for a while now,” he said Narayan, while addressing industry body CII’s seminar in Kolkata.“Research has suggested that expiry day option trading increases market volatility and could lead to noise trading that may potentially undermine confidence in price formation. Unlike longer term derivatives, short-term derivative products such as expiry day trading in index options may detract from capital formation.”The whole-time member at the markets regulator said that many experts have pointed out the Indian F&O market’s unusual structure: On expiry days, index options turnover is often 350 times or more the turnover in the underlying cash market — “an imbalance that is obviously unhealthy, with several potential adverse consequences”.A recent Sebi study showed that in FY25, nine out of 10 individual traders in the F&O segment incurred net losses. Their aggregate losses surpassed Rs 1 lakh crore during the year, a 41% increase over FY24. “This is a large sum of money that could have otherwise gone towards responsible investing and capital formation,” he said.In response to these concerns, Sebi has recently amended F&O trading regulations, primarily to discourage short-term trading, including weekly options contracts. Initial data suggest a moderation in retail trading behaviour.He acknowledged that stock exchanges, clearing corporations, depositories, brokers, and other intermediaries worry that the regulator’s move to discourage short-term trading could impact their revenues. “But we must ask ourselves collectively — is all these at all sustainable?”