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SEBI's F&O curbs leave ₹1.2 lakh crore retail loss, expiry day risk
Former SEBI member Ananth Narayan Gopalakrishnan says incremental F&O curbs have not resolved the core risks: 90% retail losses and expiry-day stability concerns. He urges renewed deliberation on stronger measures.
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Former SEBI whole-time member Ananth Narayan Gopalakrishnan said the regulator's incremental approach to curbing excessive speculation in index options has not resolved the core risks: 90% of retail traders continue to lose money, and the market remains vulnerable to a stability shock on expiry days.
Speaking to businessline, Gopalakrishnan said that while SEBI's October 2024 and May 2025 measures, including a sharp reduction in weekly index-option expiries, were a step forward, the latest SEBI research shows the underlying problems persist. “The appropriate approach, in my view, is the same one as before: examine the new evidence carefully, assess the impact of the measures already taken, consult stakeholders and experts, and then consider whether any further measures are warranted,” he said.
The risk stack
The F&O market presents two distinct risks, Gopalakrishnan said. The first is investor protection. Around 1 crore individuals trade in a segment where nine out of ten lose money, with an average annual loss of ₹1.2 lakh per person. Aggregate losses run about ₹1 lakh crore a year.
The second is market stability. On some index-option expiry days, equivalent volumes in options were 700–800 times the volumes in the underlying cash market. Market-wide open interest in index options kept rising until about 3:15 p.m. on expiry day. “Imagine an extreme external shock occurring at 3:15 p.m. on such a day, with derivative exposures many hundreds of times the underlying cash-market volumes. The potential spillovers could be significant and pose risks to market stability,” Gopalakrishnan said.
He also flagged a market-integrity concern: the settlement of a very large derivatives market depends on prices in a much smaller cash market, a vulnerability with parallels to the LIBOR rate-setting scandal.
Why SEBI moved incrementally
Gopalakrishnan, who oversaw the initial consultation papers at SEBI, said the regulator weighed the risk of unintended consequences from drastic action. Exchanges, clearing corporations and brokers derived a significant share of revenue from derivatives, particularly index options. A sudden shock could have affected liquidity, market-making and sentiment across the ecosystem.