SEBI Plans Longer F&O Contracts to Curb Excessive Short-Term Trading

The Securities and Exchange Board of India (SEBI) is looking to extend the duration of futures and options (F&O) contracts. The move is aimed at reducing short-term speculation and bringing more stability to the derivatives market.

Rise in Retail Activity Raises Concerns

There’s been a noticeable shift in trading trends. A large number of retail investors have been actively trading short-term derivative contracts. On expiry days, the turnover in index-based derivatives is now more than 350 times that of cash-equity trading.

Recent SEBI data reveals a worrying figure: 91% of retail investors in F&O recorded losses during the financial year ending March 31, 2025. This trend has raised red flags about market imbalance, investor risk, and the overall quality of price discovery in derivatives.

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SEBI's Proposed Measures

To address this, SEBI is considering a few key steps:

• Extend contract duration to discourage short-term trades and promote longer holding periods
• Reduce expiry frequency and increase the minimum lot size, making it harder for retail investors to overtrade
• Strengthen the cash-equity market, allowing for better support and more stable capital flow across market segments

Why This Move Matters

These changes are aimed at improving investor safety, especially for retail participants. With a large percentage of individual traders facing losses, the regulator wants to promote more thoughtful and less risky trading behaviour.

By reducing the number of expiry-driven trades, SEBI also hopes to stabilise price movements and make the market less volatile. Overall, these steps are seen as a way to encourage more long-term and stable investments in the derivatives segment.

What’s Next?

SEBI is expected to share a formal consultation paper soon and will invite feedback from the public. Additional proposals—such as fixed expiry days and higher margin requirements—might also be part of the plan.

Conclusion

A definite move towards more responsible and disciplined trading methods is shown by SEBI's plan to extend the terms of F&O contracts. If put into effect, the action might safeguard investors, enhance pricing integrity, and eventually result in a more robust. derivatives market.