21 Aug 2025 :The Securities and Exchange Board of India (SEBI) is exploring plans to extend the tenure and maturity of equity derivatives contracts as a strategic measure to reduce heavy losses incurred by retail investors. SEBI Chairman Tuhin Kanta Pandey revealed this potential initiative at a recent industry event, noting that the proposal is currently in a conceptual phase.
Retail Losses Fuel Regulatory Action
The study presented by SEBI underscores a stunning reality – over 90% of retail derivatives traders ended up on the losing side. The prevalence of short-term speculative trading in futures and options has led to gross outflows of investor wealth.
SEBI has already taken steps to curb speculative activities. These include reducing the frequency of contract expiries and increasing lot sizes, effectively raising the cost of short-term trades and encouraging more long-term, quality-focused participation.
Why Extend Tenure?
Short-term derivatives, especially those expiring within a day or week, dominate trading volumes and introduce heightened volatility. On certain expiry days, index options turnover dwarfs cash market turnover by more than 350 times, intensifying systemic risks.
A longer maturity structure aims to shift trader behavior towards more measured, strategic trades. Longer-tenure contracts may stabilize the market, reduce volatility, and enhance the overall quality of the derivatives segment—ultimately reinforcing capital formation.
Market Reaction
Following Chairman Pandey’s remarks, shares of BSE and Angel One dropped approximately 5–6%. Derivatives trading forms a substantial portion of their revenues—over 50% for BSE and nearly 75% for Angel One—making market participants cautious of trading volume disruptions.
Next Steps: Consultation and Industry Dialogue
Pandey emphasized that this is merely a conceptual proposal, and any eventual changes would be introduced in a calibrated and consultative manner. SEBI plans to issue a consultation paper, inviting feedback from stakeholders before moving forward.
This approach mirrors SEBI’s broader strategy of involving market participants and ensuring that regulations do not disrupt but rather improve market fairness and investor protection.
Wider Regulatory Context
SEBI’s tenure extension proposal complements earlier reforms such as limiting weekly expiries, increasing contract values, collecting option premiums upfront, and intraday monitoring of position limits. All efforts align with its mandate to ensure market integrity and consumer protection.
Pandey also mentioned collaborative initiatives with the Ministry of Corporate Affairs and stock exchanges to establish a regulated platform for pre-IPO trading, enhancing transparency for unlisted companies.
Summary
SEBI is considering extending the maturity of equity derivatives contracts to curb rampant retail trader losses—currently exceeding 90%. The regulator has already implemented measures like reducing contract expiries and increasing lot sizes to discourage short-term speculation. Extending tenure may steer investors toward longer, more strategic trades, reducing volatility and improving market quality. Shares of BSE and Angel One fell in response to the announcement, given their heavy reliance on derivatives revenue. SEBI plans to roll out a consultation paper and engage stakeholders before finalizing changes, reflecting a balanced and collaborative regulatory approach.