SEBI Plans Longer Tenure for Equity Derivatives: A Bold Step to Protect Retail Investors and Curb Losses

SEBI Chairman Tuhin Kanta Pandey reveals plans to extend equity derivatives’ tenure to curb retail investor losses. Learn how this move impacts the market, brokers, and stocks like BSE and Angel One.

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Introduction

In a landmark move that could reshape the Indian financial markets, SEBI has announced its intention to extend the tenure of equity derivatives contracts. This initiative, still in the conceptual stage, aims to curb the staggering retail investor losses in the futures and options (F&O) segment, where more than 90% of traders are estimated to lose money.

At the sidelines of an industry event on August 21, 2025, SEBI Chairman Tuhin Kanta Pandey outlined the regulator’s vision for a more sustainable derivatives market. This announcement sent ripples through the market, with shares of Bombay Stock Exchange (BSE) and discount broker Angel One declining nearly 5% each, as these firms heavily depend on derivatives trading revenues.

This blog takes a deep dive into SEBI’s plan, the rationale behind it, the impact on investors, and the broader implications for India’s stock market ecosystem.

The Current State of Equity Derivatives in India

Equity derivatives, particularly futures and options, have seen an exponential rise in trading volumes over the past few years. Much of this surge has been fueled by retail participation, thanks to:

Easy access via online trading platforms
Lower entry barriers
The allure of high returns with limited upfront investment

However, beneath this boom lies a concerning reality: over 90% of retail participants in F&O lose money. This has raised red flags for regulators, who worry that unregulated speculative trading could destabilize the market and erode investor confidence.

Currently, equity derivatives contracts in India have a maximum tenure of three months. Traders can choose contracts expiring in the near month, next month, and the far month. SEBI’s proposal to extend the tenure aims to address the short-term speculative frenzy that dominates the market.

SEBI’s Proposed Extension of Tenure: What It Means

SEBI’s move to extend the tenure and maturity of equity derivatives contracts is designed to:

Reduce Speculative Trading: Longer-tenure contracts may encourage investors to think long-term rather than chase quick gains.
Encourage Hedging: Corporations and institutional investors looking to hedge risks would benefit from extended contract tenures.
Promote Market Stability: Reduced volatility in near-term contracts could make markets less prone to manipulation.

Chairman Pandey emphasized that the plan is at a conceptual stage, but it reflects SEBI’s intent to restructure market dynamics for greater sustainability.

Other Regulatory Interventions by SEBI

This isn’t SEBI’s first attempt at addressing the risks of F&O trading. Previous steps include:

Restricting the number of contract expiries
Increasing lot sizes to make derivatives trading costlier and less accessible to small, uninformed retail traders
Monitoring broker practices more closely

Additionally, SEBI has now set up a dedicated unit to examine manipulation patterns, as confirmed by whole-time member Kamlesh Varshney. This unit will scrutinize abnormal trading behaviors and identify strategies that can distort price discovery.

The Jane Street Controversy: A Catalyst for Action

SEBI’s cautious stance was reinforced after it temporarily barred Jane Street, a U.S.-based trading firm, for allegedly manipulating a key stock market index through arbitrage strategies. Though Jane Street denied the allegations, claiming its strategies were straightforward arbitrage, the episode highlighted vulnerabilities in India’s derivatives market.

The incident brought global attention to India’s rapidly growing but fragile derivatives ecosystem and pushed SEBI to tighten oversight.

Brokers Association Pushback: Calls for Higher Entry Barriers

In response to rising losses among retail traders, broker associations are preparing to recommend higher entry barriers for participation in the F&O segment. These could include:

Minimum income or net worth criteria
Mandatory investor education modules
Stricter Know Your Customer (KYC) requirements

While such measures could shrink retail participation, they are seen as necessary to ensure market health and investor safety.

Impact on Market Players: Stocks That Felt the Heat

The announcement had an immediate effect on key market players:

1. Bombay Stock Exchange (BSE)

Impact: Shares of BSE fell nearly 5%.
Reason: Derivatives trading contributes over 50% of its revenue. Any regulatory tightening that reduces trading volumes directly affects its top line.
Fundamentals: BSE remains financially stable with strong cash reserves, but its heavy reliance on derivatives revenues is a potential vulnerability.

2. Angel One (Discount Broker)

Impact: Shares declined around 5%.
Reason: F&O trading makes up nearly 75% of Angel One’s revenue. Retail participation is its backbone, and stricter rules or extended tenures could reduce volumes.
Fundamentals: The company has strong growth in customer onboarding, but profitability may shrink if retail derivatives trading slows.

Market Fundamentals: Broader Drawdown

While BSE and Angel One bore the immediate brunt, the move could ripple across the financial ecosystem:

NSE (National Stock Exchange): As the country’s largest derivatives platform, NSE may also face volume pressures. However, its diversified product base provides some cushion.
Other Discount Brokers (Zerodha, Groww, Upstox): These platforms, which thrive on high retail participation, could see slower client activity if entry barriers increase.
Listed Brokerages & FinTech Firms: Revenue drawdown may follow, but the long-term credibility of markets could improve, benefiting them indirectly.
Blue-chip Companies: Corporations using derivatives for hedging may benefit from longer tenure contracts, aligning risk management with business cycles.

The Grey Market: Bringing Transparency

Another key revelation from SEBI is the plan to collaborate with the Corporate Affairs Ministry and stock exchanges to establish a regulated platform for the grey market, where unlisted shares are currently traded informally.

This initiative could:

Bring transparency and investor protection into the grey market
Help SEBI monitor pricing and volume activity in pre-IPO shares
Reduce risks of fraud and manipulation

The Road Ahead

While SEBI’s proposal to extend equity derivatives’ tenure is still at the conceptual stage, it signals a decisive regulatory shift. The focus is no longer just on growth and participation, but on sustainability, stability, and investor protection.

If implemented, we could witness:

A slowdown in speculative retail activity
A healthier market environment for long-term investors
A more robust hedging framework for institutions

However, these measures could also reduce short-term revenues for brokers and exchanges, testing their adaptability and resilience.

Author’s Note

The Indian equity market is at a crossroads. SEBI’s intent to extend the tenure of derivatives contracts is not just about curbing losses but about reshaping investor behavior. By encouraging long-term thinking, the regulator hopes to reduce speculative excesses and foster a more resilient financial ecosystem.

For investors, this is a wake-up call: stock markets are not casinos. While derivatives can be powerful tools for hedging and wealth creation, they demand discipline, knowledge, and risk management. SEBI’s steps may initially dent trading volumes and brokerage revenues, but in the long run, they will strengthen the credibility of India’s capital markets.

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