MC Exclusive: F&O Crackdown - Panel Suggests One Weekly Option per Exchange, ₹20-30 Lakh Minimum Lot Size

The Working Committee on Futures and Options has proposed several measures to address the substantial increase in derivatives volume, according to sources who spoke with Moneycontrol. Key recommendations include raising the minimum lot size of derivative contracts from ₹5 lakh to a range of ₹20 lakh-₹30 lakh, restricting weekly options to one expiry per stock exchange per week, and limiting the number of strike prices for options contracts.

These recommendations aim to mitigate the surge in derivatives trading, driven largely by high retail participation in recent years. The Securities and Exchange Board of India (SEBI) had formed this expert working committee last month to tackle the issue of excessive speculation.

The two most impactful suggestions, if adopted, would be the significant increase in contract size, which could render trading unaffordable for small traders, and the restriction on the number of weekly expiries, thereby reducing the trading opportunities available.

Additional proposals include:

• Reducing the number of strike prices available.
• Collecting option premiums from buyers upfront.
• Implementing intra-day monitoring of position limits.
• Increasing margin requirements as the expiry date approaches.

These suggestions will be reviewed by the Secondary Market Advisory Committee before any final decisions are made.

The rise in derivatives trading volume in India has raised concerns. While SEBI Chairperson Madhabi Puri Buch has noted that the increase does not pose systemic risks due to the robust margining system in place, there are significant social repercussions. Many individuals reportedly borrow money to trade options, despite a SEBI study showing that nearly 90% of retail traders incur losses on options bets.

Market experts have criticized the prevalence of weekly contracts, arguing that they are primarily used for speculation rather than their intended purpose of hedging.

SEBI Chairperson Madhabi Puri Buch has stated that the regulator is open to removing any derivative products from the market if the working committee recommends such actions, emphasizing a data-driven approach. "If that’s what needs to be done, and that’s what the committee recommends, and we agree with the logic, we will do it," she remarked at a press conference following the last Board Meeting on June 28.

SEBI data indicates that overall derivative turnover has increased from ₹210 trillion in FY18 to ₹500 trillion in FY24. The Futures & Options (F&O) segment has seen a significant rise in retail investor participation, growing by over 40% from 65 lakh in FY23 to 96 lakh in FY24. The proportion of individual investors in index options surged from 2% in FY18 to 41% in FY24.