SEBI Loosens Grip on Intraday F&O Trading After Industry Pushback

SEBI is changing course. After receiving strong feedback from across the trading world, India’s market regulator has decided to ease some of its proposed restrictions on intraday trading in the futures and options (F&O) segment. The move comes after concerns that stricter rules could drain market liquidity and scare off both retail and institutional investors.

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Why SEBI Wanted Stricter Rules in the First Place

Initially, SEBI rolled out proposals to dial down speculative trading and protect retail investors from heavy losses. They planned to limit intraday and carry-forward positions in index and stock derivatives. The idea? Make the market safer and more stable.

A significant driver behind these proposals was the surge in retail investor activity in the F&O space, many of whom, according to SEBI data, lost serious money. The regulator described the trend as “excessive risk-taking” and aimed to slow things down by capping how much and how often people could trade.

Market Pushback: “This Could Do More Harm Than Good”

But the market's response was loud and clear: too much regulation could backfire. Brokers, institutional traders, and proprietary desks warned that the rules might weaken market depth and reduce the efficiency of the entire derivatives ecosystem.

There were also concerns about hedging. Institutions and fund managers often use F&O to manage risk. Clamping down too hard could mess with their ability to protect portfolios.

A senior strategist from a top brokerage put it bluntly: “The rules had good intentions, but they risked causing more volatility by drying up liquidity.”

SEBI’s New Approach: Smarter Surveillance, Looser Limits

SEBI listened. Instead of pursuing strict trading caps, the regulator is shifting its focus to more intelligent monitoring. Their plan includes strengthening surveillance to detect risky or manipulative trades better.

They’ve also raised the limits:

Gross options positions: Now capped at ₹100 billion, up from ₹15 billion.
Net options positions: Raised to ₹15 billion, up from ₹5 billion.
No blanket limit on intraday index derivatives trading, but real-time tracking is in place.

This change is all about balance. SEBI wants to target the bad apples without punishing everyone, especially those using derivatives for legitimate hedging or arbitrage.

Market Reaction: Relief and Approval

Markets reacted positively to the revised stance. Major indices saw slight gains, and derivatives trading volumes stayed strong. Brokers and industry groups praised SEBI for being flexible and responsive.

“This is a smart move. SEBI is protecting investors without slowing down the market,” said Deepak Sharma, CEO of a Mumbai-based brokerage.

Retail investors appreciated the clarity, too, but asked for more efforts to educate people about the real risks of F&O trading.

A Closer Look at the Retail Boom in F&O

Retail trading in the F&O space has exploded. NSE data shows a dramatic spike in participation over the past two years. But there’s a problem, SEBI research found that over 90% of individual F&O traders lose money, with average losses of around ₹1.1 lakh a year.

With social media influencers and trading apps promoting fast profits, many new traders have jumped in without understanding the risks. SEBI’s initial proposal aimed to counter this trend with tighter rules.

A SEBI official summed it up: “Markets have changed. Regulation needs to catch up. We’re trying to find that middle ground.”

What’s Next: Smarter Tools, Better Oversight

Even with the rollback, SEBI is still focused on long-term reforms. Their roadmap includes:

Real-time systems to flag suspicious trades.
Dynamic margin rules that tighten as risk increases.
Public education on how derivatives work, and how they don’t.
Tech-driven audits for high-speed and algo trading.

In a recent circular, SEBI said it will continue to monitor different types of traders and may roll out safeguards gradually if necessary.

Learning from Global Markets

India’s F&O market is now one of the busiest in the world, especially for index options. SEBI is taking notes from global leaders like the Chicago Board Options Exchange and European markets. Instead of strict limits, those markets rely on margin requirements, trade disclosures, and circuit breakers to manage risk.

A Singapore-based consultant summed up SEBI’s challenge as follows: “India’s derivatives market has matured. The key now is to create rules that encourage growth but keep speculation in check.”

Final Thoughts: A Balanced Reset

SEBI’s revised plan marks a major shift in India's derivatives regulation. By reducing blanket restrictions and investing in smarter surveillance, SEBI is taking a more nuanced, modern approach.

The F&O market is evolving fast, and so are the risks. The way forward is smarter regulation, more education, and collaboration across the board.