SEBI Chief Raises Macro Concerns Over F&O Trading Volume Growth

The Chairperson of the Securities and Exchange Board of India (SEBI), Madhabi Puri Buch, recently voiced significant concerns regarding the dramatic increase in trading volumes within the futures and options (F&O) segment. Speaking at an event hosted by SBI Mutual Fund, Buch emphasized that F&O trading has escalated to a macro-level issue, impacting not just individual investors but the broader economic landscape.

Growing F&O Trading Volumes: A Macro-Level Concern

The rapid growth in F&O trading volumes has raised alarms at SEBI. Buch pointed out that the regulator’s worry extends beyond the micro-level risks to individual investors, reaching a macro-level concern about the potential disruption to economic growth. “The surge in trading volumes and subsequent losses in the F&O segment could not have been predicted,” she remarked.

Buch further explained, “If you observe the exponential increase in F&O trading volumes over recent years, it’s surprising. The number of young individuals entering this market and experiencing significant losses was unforeseen.”

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Impact on Household Savings and Capital Formation

One of SEBI’s primary concerns is the diversion of household savings from capital formation to speculative activities. Buch stated, “At a macro level, we are worried that household savings are being diverted into speculative trading rather than contributing to capital formation.”

SEBI is now compelled to take action based on data-driven insights. Buch assured that the regulator remains adaptable, saying, “SEBI eschews dogma and follows data. If future data suggests a different course of action, we will adjust our views accordingly.”

Systemic Risks and Volume Growth

Following a recent meeting with SEBI’s Board on June 27, Buch elaborated on the systemic risks posed by skyrocketing F&O volumes. She cautioned about the potential for a black-swan event, stating, “There is systemic risk within the capital market ecosystem itself. While we believe we are reasonably well-protected, there is always room for improvement.”

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Buch provided striking figures to illustrate the volume growth. The turnover in index options, in premium terms, has surged from Rs 4.5 lakh crore in 2018 to Rs 140 lakh crore in 2024. Additionally, the overall turnover in the derivative segment has increased from Rs 210 lakh crore in 2018 to Rs 500 lakh crore in 2024. Notably, the share of individual investors in this segment has jumped from 2 percent to 41 percent over the same period.

Future Outlook and Regulatory Measures

As SEBI navigates these challenges, it remains committed to protecting investors and ensuring the stability of the financial markets. Buch reiterated the importance of data-driven decision-making and the regulator’s willingness to adapt to changing circumstances.

In conclusion, the rapid expansion of F&O trading volumes has prompted SEBI to consider macroeconomic implications and the need for regulatory intervention. By staying vigilant and responsive to data, SEBI aims to safeguard the interests of both individual investors and the broader economic system.