SEBI has proposed stringent regulations for trading derivatives on individual stocks to mitigate market manipulation risks following a surge in options trading driven by retail investors. The notional value of index options traded escalated to $907.09 trillion in 2023-24, doubling from the previous year, according to NSE.
A new SEBI discussion paper suggests that individual stock derivatives must meet liquidity and trading interest requirements, which were previously mandatory only for index contracts. The paper, published on SEBI’s website, advocates that for eligibility in futures and options trading, a stock should have active trading on 75% of days.
Additional criteria under the proposed rules include engagement from 15% of active derivatives traders and a significant trading volume with an average daily turnover ranging between ₹500 crore and ₹1,500 crore. The rules also specify a cap on open futures and options contracts worth between ₹1,250 crore and ₹1,750 crore.
The regulatory changes aim to safeguard the market from volatility and manipulation as Indian exchanges compete aggressively by introducing new products and reducing fees. This competition has intensified derivatives trading, making Indian exchanges major players globally.
Globally, Indian exchanges accounted for 78% of the 108 billion options contracts traded in 2023, with retail investors representing 35% of the derivatives market. The SEBI discussion paper marks the initial step towards revising policies or rules in response to evolving market dynamics.
