SEBI Eyes Longer Equity Derivatives Tenure—What’s Behind the Move?
SEBI Eyes Longer Equity Derivatives Tenure—What’s Behind the Move?
At the recent FICCI Capital Market Conference, SEBI Chairman Tuhin Kanta Pandey announced that India's markets regulator is exploring ways to extend the tenure and maturity of equity derivatives contracts. This strategic shift comes in response to a spike in short-term derivatives trading, particularly among retail investors.
Currently, ultra-short-term contracts dominate trading volumes—on index expiry days, options turnover often exceeds cash market turnover by over 350 times. Meanwhile, SEBI data indicates that 91% of individual traders incurred net losses in futures and options during FY25, cumulatively exceeding ₹1 lakh crore.
By extending contract durations, SEBI aims to:
Discourage excessive speculation and ultra-short trading.
Improve market quality and stability, aligning with long-term capital formation goals.
Deepen the cash equity market by redirecting investor focus from fleeting trades to sustained participation.
SEBI has already imposed certain reforms—such as limiting contract expiries and increasing lot sizes—to make short-term trades more expensive and less enticing to speculative bidders.
However, specifics on how much the tenure would be extended or how the maturity structure would evolve remain under consultation. The regulator plans to issue a consultation paper outlining details soon.
Potential Market Implications at a Glance
Area Potential Impact
Derivatives Volume May decline in ultra-short trades; longer contracts could shift investor behavior
Market Stability Likely improvement due to reduced speculation and volatility
Investor Impact Retail investors may benefit from fairer dynamics; reduced risk of sudden losses
Exchanges/Brokers Might face revenue shifts—short-term volume-driven income may decline
Policy Direction Focus shifting toward healthy cash market deepening and structural market reforms
By Nehal Taparia
This content is for educational and knowledge purposes only and should not be considered as investment or Trading advice. Please consult a certified financial advisor before making any investment or Trading decisions.
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Q1: Why is SEBI considering extending the tenure of equity derivatives?
The aim is to curb rampant short-term speculative trading that undermines market stability and capital formation—such as expiry-day turnover exceeding cash market volumes by 350x.
Q2: What problems is this reform trying to address?
Retail investors are losing heavily—91% incurred net losses amounting to over ₹1 lakh crore in FY25 alone. The reform seeks to protect investors and promote healthier, long-term trading practices.
Q3: How might extending tenure help market stability?
Longer F&O contracts may reduce volatility, curb speculation, and support long-term investment behavior, yielding a more sustainable and efficient derivatives market.
Q4: Any recent steps SEBI has taken in this direction?
Yes. SEBI has already limited contract expiries and raised lot sizes to disincentivize ultra-short-term trades.
Q5: What's the market reaction so far?
Certain players, like BSE and Angel One, saw stock price declines following the announcement—reflecting investor uncertainty about how these reforms may hit derivatives-related revenues.
Q6: What’s next in the reform timeline?
SEBI will release a consultation paper soon, detailing proposed changes. All reforms will be transparent and involve stakeholder inputs.
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