SEBI Proposes Derivative Reforms to Curb Index Options Concentration

The Securities and Exchange Board of India is implementing a series of reforms to address the heavy concentration of retail trading in index options and improve market stability. Chairman Tuhin Kanta Pandey announced that the regulator is considering reducing margin requirements for longer-dated derivative contracts, including stock futures and stock options, to encourage a more balanced market. This follows a SEBI study showing that 87.7% of individual traders lost money in equity derivatives in FY26, with total losses reaching ₹91,686 crore.

To address technical market concerns, SEBI issued a consultation paper on September 12 proposing changes to the settlement price methodology for derivatives on expiry days. The proposals include delinking settlement prices from cash-market closing prices and discontinuing live indicative index values during the Closing Auction Session. The regulator is weighing two options: a Blended VWAP based on the final 30 minutes of continuous trading and the 10-minute auction session, or maintaining the existing CTS VWAP as an interim measure.

Beyond derivatives, the regulator is developing a market-making framework for corporate bonds and consulting on the net settlement of funds for mutual fund schemes to enhance liquidity and price discovery across the broader financial ecosystem.