Impact of SEBI's Derivatives Trading Limitations on Retail Investors: Effectiveness Assessment
India's equity derivatives segment, which witnessed a surge in retail participation over the past few years, has seen a significant shift following the regulatory interventions introduced by the Securities and Exchange Board of India (SEBI) in October 2024.
The measures, aimed at curbing speculative trading by retail investors, have resulted in a decrease in the number of retail investors and a reduction in turnover, contributing to a decrease in average losses among individual traders.
According to a recent study by SEBI, the number of retail investors in the equity derivatives segment dropped 20% year-on-year in the six months following the interventions. The number of small individual traders (with total turnover below Rs 1 lakh) fell even more sharply at 30%, reversing a prior two-year growth trend of 57%.
Trading volume in index options declined by 9% in premium terms and 29% in notional terms year-on-year, indicating a significant cooling of speculative activity. However, retail participation remains 24% higher than two years prior.
The interventions, which were implemented between November 2024 and April 2025, included rationalizing weekly and monthly index derivatives products, increasing contract sizes, mandating upfront collection of option premiums, removing calendar spread treatment on expiry day, launching intraday monitoring of position limits, and raising margins, especially on expiry days.
The rapid growth in the equity derivatives market over the last five years had raised concerns about families risking significant savings in a highly leveraged and volatile market, where institutional players, including foreign high-frequency traders like Jane Street, exploit advantages using sophisticated algorithms.
Institutional and proprietary traders earned massive profits, while retail traders incurred massive losses, highlighting a widening gap in outcomes. SEBI's regulatory tightening reflects the need to balance market growth with investor protection and market integrity, addressing the structural imbalance between retail and institutional participants.
Despite the decrease in retail participation, the losses in the segment remained substantial, with retail investors collectively losing over Rs 1.05 lakh crore (about $12 billion) in fiscal year 2024–25. However, SEBI’s interventions are showing early signs of mitigating these losses by reducing participation and turnover among the most vulnerable retail traders.
It is important to note that the SEBI study did not mention any specific changes or measures related to retail investor participation in the single-stock derivatives segment.
The evolution of the equity derivatives segment over the past five years has been marked by a surge in retail participation and trading volumes, with many individual investors engaging heavily in futures and options trading. The average daily traded value by individual investors dropped 11%, and the number of individual traders fell 20% in the January-March quarter from the previous three months.
Retail investor-led turnover in the index derivatives segment was 10 times the volume in single-stock derivatives in FY25. The average daily traded value in equity derivatives fell 5% from a year earlier. The losses of individual investors in the equity derivatives segment jumped from Rs 40,827 crore in FY22 to Rs 1.06 trillion in FY25, with the net losses of individual traders widening by 41% to almost Rs 1.06 trillion in FY25 from Rs 74,812 crore in FY24 (after accounting for transaction costs).
In FY20, for every Rs 100 traded by individuals in EDS, around Rs 5 went into index options. This rose to Rs 41 in FY25, indicating a shift towards index derivatives trading.
In conclusion, SEBI’s October 2024 interventions have successfully reduced retail investor participation and speculative turnover in the equity derivatives segment, contributing to a decrease in average losses among individual traders. The measures aim to foster a more sustainable and fair trading environment, addressing the structural imbalance between retail and institutional participants while ensuring market growth and investor protection.
Retail investors' participation in the equity derivatives segment dropped significantly following SEBI's interventions, with a 20% decrease year-on-year in the six months following the interventions. Despite this decrease, retail investors incurred substantial losses of over Rs 1.05 lakh crore (about $12 billion) in the fiscal year 2024-2025, highlighting the need for balanced market growth, investor protection, and market integrity.
In the personal-finance realm, the measures introduced by SEBI also impact investing strategies, as the decreased retail participation could lead to changes in the stock-market dynamics, possibly benefiting more experienced institutional and proprietary traders.
