Persisting retail F&O losses spur call for tighter eligibility filters

Nearly two years after India's Securities and Exchange Board (SEBI) implemented measures to curb excessive retail speculation in derivatives markets, industry experts are increasingly advocating for stricter eligibility and suitability norms for futures and options (F&O) trading. Data released by SEBI has reignited calls for more stringent entry norms, with industry participants proposing measures such as income thresholds, investor qualification tests and accredited investor status.

Dhiraj Relli, Managing Director and CEO of HDFC Securities, emphasized the need for more robust suitability checks, stating that SEBI's recent regulatory interventions have yielded some success, but additional safeguards are required. SEBI's latest findings revealed that while the number of individual traders fell for the first time in nine years following regulatory intervention, trading behavior remained largely unchanged.

Approximately 97% of retail activity was concentrated in contracts with less than a week to expiry, and 87.7% of individual traders ended FY26 with losses, with the average loss per trader rising to ₹1.16 lakh. The data suggests that derivatives traders with larger underlying equity portfolios tend to perform better than those with little or no cash-equity exposure, reinforcing the argument for suitability-based access.

Ananth Narayan, former SEBI whole-time member, noted that the debate on the derivatives framework should continue, as SEBI has already taken significant measures and the market has evolved rapidly, necessitating further regulatory adjustments. The suitability issue is gaining traction among market intermediaries, with industry leaders calling for practical and proportionate measures to ensure investors understand the risks and have the financial capacity to bear potential losses.