In recent months, the Securities and Exchange Board of India (SEBI) has taken a proactive stance toward regulating the fast-growing Equity Derivatives Segment (EDS), particularly index options, with an aim to enhance market stability and investor protection. In response to media commentary on the impact of these regulatory actions, SEBI has released key findings of a detailed study comparing trading activity in EDS and the cash market between December 2024 and May 2025.
This analysis provides an evidence-based view of market trends following the implementation of SEBI’s new framework introduced via its October 1, 2024 circular.
📊 Key Findings from SEBI’s Comparative Analysis
Moderation in Index Options Turnover
Premium turnover for index options saw a 9% year-on-year decline, while notional turnover dropped 29%.
However, compared to the same period two years ago, index options are still up by 14% (premium) and 42% (notional), indicating sustained growth over the medium term.
Impact on Individual Investors
Turnover from individual investors in premium terms declined 11% year-on-year, but rose 36% compared to two years earlier.
The number of unique individual traders in EDS fell by 20% year-on-year, but remained 24% higher than two years ago—suggesting that while the growth slowed, long-term participation is still on the rise.
India’s Position in Global Market
Despite recent moderation, India continues to have one of the highest levels of EDS trading globally, particularly in index options, underlining the market’s depth and participation.
🔍 Profitability Trends Among Individual Traders
One of the most striking insights from SEBI’s study is the profitability analysis of individual traders in the EDS:
In FY 2025, 91% of individual traders incurred net losses—a pattern that mirrors the findings from FY 2024.
This trend underscores concerns around retail investor awareness, risk-taking behavior, and the need for stronger risk disclosures.
🛡️ SEBI’s Response: Strengthening Risk Frameworks
To balance innovation and investor protection, SEBI introduced additional measures via a circular dated May 29, 2025, with the following objectives:
Improved risk monitoring and disclosures in derivatives trading.
Reduction in spurious ban periods for single-stock derivatives, which can disrupt trading flows.
Enhanced oversight to identify concentration or manipulation risks, especially in index options.
📈 Outlook and SEBI’s Monitoring Approach
SEBI has clarified that turnover trends in index options will continue to be closely observed. The goal is to ensure that the growth in derivatives volumes is aligned with market maturity, investor understanding, and robust risk management.