SEBI hikes entry threshold for derivative trading from Rs 5-10 lakh to Rs 15-20 lakh

The Securities and Exchange Board of India ( SEBI ) introduced stricter regulations for equity derivatives trading on Tuesday, significantly raising the entry threshold and increasing trading costs. The move, aimed at ensuring market stability and protecting retail investors, comes despite resistance from parts of the investment community.

As per SEBI ’s latest circular, effective November 20, the number of weekly options contracts available for investors will be reduced to one per exchange, and the minimum trading amount has been increased nearly threefold—from Rs 500,000 to a range between Rs 15 lakh to Rs 20 lakh.

This decision follows proposals introduced by SEBI in July and reflects growing concerns about the rapid rise of retail investors in the derivatives market. In August 2023 alone, India’s derivatives trading reached a notional value of Rs 10,923 lakh crore, making it the highest globally, according to SEBI data.

A recent SEBI study highlighted that individual Indian traders incurred net losses of Rs 1.81 lakh crore in futures and options trading over the three years leading to March 2024, with only 7.2 per cent of retail traders reporting profits. Over the past year alone, retail investors’ gross losses amounted to Rs 52,400 crore. In contrast, proprietary traders and foreign investors made substantial profits, registering Rs 33,000 crore and Rs 28,000 crore, respectively.

Key Changes and Phased Implementation

The new rules will be implemented in phases. Starting from November 20, weekly expiries for index derivatives and larger contract sizes will take effect. By February 1, 2025, SEBI will enforce upfront premium collection for options buyers and remove calendar spread treatment on expiry day. Furthermore, starting April 1, 2025, intraday monitoring of position limits will be introduced.

SEBI expressed concerns over speculative trading, especially on expiry days, where average holding times are often in minutes, contributing to increased market volatility. The regulator stressed that these speculative practices offer minimal benefit to long-term capital formation and pose risks to market stability.

These regulations reflect SEBI ’s broader effort to curb risky retail trading and strengthen India’s position in global derivatives markets while safeguarding investors from potential losses. The move is seen as crucial for sustaining investor confidence and fostering a stable market environment.

Impact on Retail Traders and Market Outlook

SEBI 's move to limit speculative trading and raise entry barriers has sparked debates about its potential impact on retail participation. While some investors argue the rules could stifle market activity, SEBI maintains that these measures are essential to ensuring sustainable growth and protecting investors from excessive risks.