India’s markets regulator, SEBI, is reportedly exploring the introduction of investor-suitability norms for derivatives trading, focusing on rules linked to a trader’s exposure to the equity market. The move aims to ensure that only participants with sufficient financial understanding and risk-bearing capacity engage in futures and options (F&O) trading.
The proposed criteria could consider both direct and indirect equity exposure, including holdings in the cash equity market, equity mutual funds, and portfolio management services (PMS), as benchmarks to determine eligibility for F&O trading. SEBI is expected to engage with stock exchanges to seek their input and feedback before finalising the guidelines. A consultation paper outlining the potential suitability norms may also be issued to invite comments from stakeholders.
The step comes amid growing concerns over speculative activity by retail investors, as participation in F&O markets has surged significantly in recent years. Data from FY25 revealed that individual traders lost over ₹1 lakh crore in derivatives, with approximately 91% of retail participants posting losses. This trend has prompted SEBI to reassess trading access, market risks, and possible regulatory tightening to protect retail investors and promote more responsible trading behavior.
