Regulators and industry experts debate whether tighter suitability measures or product restrictions better protect retail investors, as recent data shows declining participation but continued risks in India’s futures and options market.
India’s derivatives market is facing a fresh debate over who should be allowed to trade and on what terms, as regulators and market participants revisit whether tighter suitability checks would do more to protect retail investors than product restrictions alone. Nearly two years after the Securities and Exchange Board of India began moving against excessive speculation in futures and options, industry executives say participation has fallen, but the underlying trading pattern has changed far less than hoped.
The latest SEBI figures appear to have sharpened that argument. According to reports based on the regulator’s fiscal 2026 studies, the number of active individual F&O traders fell for the first time in nine years, dropping by about a fifth from the previous year, while overall retail turnover declined only modestly. Much of the activity remained concentrated in contracts expiring within a week, and SEBI’s data showed that 87.7% of individual traders ended the year with losses, even after the aggregate loss figure eased to about ₹91,685 crore from roughly ₹1.12 trillion a year earlier.
That combination of lower participation and persistent losses has led some brokers and former regulators to argue for a more selective market. Dhiraj Relli, chief executive of HDFC Securities, said there should be “more stringent suitability exercises” and described himself as an advocate of suitability. Ananth Narayan, a former whole-time member at SEBI, told The Hindu BusinessLine that the framework should keep evolving as the market changes, and that checks on income, qualifications or accredited-investor status deserve continued discussion if they can be applied without erecting arbitrary barriers.
Narayan also warned that the regulator has to balance investor protection against the commercial importance of derivatives, which account for a substantial share of revenue for exchanges, clearing corporations and brokers. He argued that India should deepen liquidity in the cash market and in longer-dated derivative contracts, including through the securities lending and borrowing mechanism, rather than simply trying to suppress options trading. Ashish Nanda, chief digital business officer at Kotak Securities, said the data could nudge retail investors towards building longer-term equity portfolios instead of treating derivatives as a quick trade.
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