'It is not a micro, but a macro issue': Sebi chief red flags explosive growth in F&O segment

The explosive growth in the derivatives market is no longer a micro issue but a macro one, warned Sebi chief Madhabi Puri Buch. 

With daily turnover in the futures and options (F&O) segment nearing Rs 400 trillion, Buch emphasized on the need for regulatory intervention to curb speculative activities that jeopardize household savings and economic stability.

Buch, who was speaking at an event, underscored the unexpected spike in trading volumes and the adverse impact on household savings due to speculative trading. "Many young investors have suffered substantial losses, a scenario nobody foresaw. The focus must shift from protecting individual investors to addressing macro-level issues. We are concerned that household savings are being diverted from capital formation to speculative activities," Buch remarked.

Sebi is preparing to release a consultation paper aimed at reducing turnover in the derivatives market. During a meeting of Sebi's Secondary Market Advisory Committee on Monday, discussions were held on reviewing current regulations and product offerings across seven parameters, including lot size and limiting option expiries.

Sebi is also mulling implementing multiple pop-ups and factual risk disclosures at the broker level when clients initiate trades.

Buch noted that nearly Rs 80,000 crore worth of IPOs are under approval process, with Rs 40,000 crore already approved and in the pipeline. She also addressed illegal portfolio management services (PMS) and emphasized that new regulatory proposals aim to meet the market demand for a legitimate asset class in mutual funds.

Responding to queries about the global tech outage on Friday, Buch assured that market participants have developed adequate backups to mitigate such risks, and investor protection mechanisms are triggered only when specific timelines or thresholds are breached.

Buch also expressed optimism about the growth potential of REITs and InvITs, suggesting they could expand to match the current size of India’s GDP. Additionally, she advocated for the "sachetisation" of financial products, encouraging smaller systematic investment plans (SIPs) to increase accessibility for a broader audience.