The moves by the government, RBI, and SEBI to curb speculation in the Futures & Options (F&O) segments are just the latest in a series of steps that began in 2024, and there’s more on the way, says SEBI Chief Tuhin Kanta Pandey.
By Prashant Nair
From higher Securities Transaction Tax (STT) on equity futures to restricting the number of weekly expiry contracts an exchange can offer to higher minimum contract sizes, India’s government and the concerned regulatory bodies are in sync: speculation in F&O, especially by retail investors, has to be curbed.
The work began in 2024, and a series of measures have come in since then. Securities & Exchange Board of India (SEBI) Chairman Tuhin Kanta Pandey says this is by design, and adds that more measures will come in as and when warranted.
“In consultation with industry, in consultation with various others, our own thoughts, we put out a framework in terms of market regulation, bringing in different risk metrics, position limits, upfront payments, expiry day margins and so on and so forth. And they rolled out on different dates. The last of it was in December. We will continue to monitor this and have the data put out before suggesting any measures,” he said, as he completes one year as the market regulator on March 1, 2026.
Pandey said the preference is not to put a stop to derivatives altogether, but to encourage a shift towards longer-term contracts that serve clearer hedging and price-discovery purposes. To this end, the regulator is adopting a data-based approach, and indicates it is open to tweaking even the newer norms if needed.
“We are also looking at the measures that will help because it's not really.. \we can actually be very reactive and try and put in some measures which may not be effective. So therefore we need to really actually delegate what are the more effective measures, if at all, if the data suggests otherwise,” he said.
If the F&O door closes, the cash window opens?
At the same time, SEBI is examining ways to deepen the cash equity market, including a review of the short-selling and securities lending framework. As Pandey put it, “it is indeed our endeavour that the cash markets must further become more liquid. We had to have a working group looking into it to review the short selling and the Securities Lending and Borrowing Mechanism (SLBM) framework under the cash market.”
But Pandey admits that there are some barriers that have kept these activities from taking off. Addressing these is a priority.
SEBI & RBI: Acting in concert
SEBI is also on board with the Reserve Bank of India’s recent rules that limit bank exposure to brokers buying securities for their own accounts, which is called proprietary trading. The rules, which apply a near-total ban on funding proprietary trades, has sparked representations by market intermediaries asking for relaxations.
However, Pandey says these representations don’t hold water. “I think the points which are being made out are not really very convincing. You know, the RBI had itself put out these guidelines and sought for comments in all the four issues that were indicated to us,” he said.
Deepening other existing markets is also part of the overall strategy to bring in more stability. SEBI is engaged with RBI to do more for the commodity markets, including the possibility of allowing banks and insurance companies to invest in commodity derivatives. While the proposal has been mooted, the RBI is yet to get back, Pandey said, adding that SEBI already has two working groups working out the possibilities.
“You can simply ban it, or you don't ban it. There's one approach. The second one is ‘no, you can do it, but provided you have a position limit, you have a margins of this kind’. So this is the way we have to move. The commodity derivative market hasn't been looked at in a proactive manner for a long time both on the agriculture and the non-agriculture side. But we do have the potential,” he said, adding, “Obviously we will further engage with RBI on that. We haven't really finally heard from them what their reservations are, and what guardrails could be put in place.”
Making India FPI-friendly
Foreign Portfolio Investors (FPIs) have been net sellers in the Indian equity markets for a while now, with a lot of the pressure being absorbed by domestic investors. But the SEBI chief is not worried, saying these movements of money depend on a lot of factors. Many of these may be outside SEBI’s ambit and control. However, the areas that are under SEBI’s control are being worked on.
One big area of focus has been making registrations easier and access to markets quicker. SEBI is working on reducing the amount of time it takes an FPI from registration to investing in the Indian equity markets to a matter of 5 days. It has also done a lot of work on reducing compliance burdens, streamlining processes, and digitising systems.
Some of the archaic requirements, he points out, like physical documentation and notarisation requirements are being removed. The need for repeated document submission has also been reviewed and streamlined. “We have actually deeply engaged with [FPIs] and some of the new registrations have come with India Digital Signatures on submission of documents, which is an important part of the delay… It's just something that we do in our domestic market very, very effectively. We have such a digitized economy, digitized society. So this is one area where we are now pushing for proactively to see that we move into a completely digitized zone,” he said.
The other area SEBI is actively working on modernising existing frameworks like the Block Deal Framework, and shortening the time it takes for settlement of trades. “Block deal framework was old, was not able to catch up with the new reality. It was not flexible enough. So we have taken a reasonable stance on that after due concentration and implemented that,” Pandey explained.
He added, “We have a consultation paper out there and very soon we should be moving forward in terms of implementing FPI netting. This will improve the efficiency of their funds to T+1. We have ensured that they are able to move the funds right on the T+1 day; not a day extra.”
The overall approach is in keeping with SEBI’s broader strategy: make India’s markets operationally easier and more efficient for foreign capital, and make the market structure smoother and more predictable, while nudging domestic market activity toward greater stability and longer-term orientation.
(Edited by : Arvind Sukumar )