(THE NEWSMAN OF INDIA.COM)
Date: March 7, 2025 by Abul Hasan: In a recent panel discussion, industry experts gathered to address the current state and challenges of India’s derivatives market, with particular focus on the per trade value, regulations, and the evolving risks in the sector. Several key insights emerged, offering a comprehensive view of the current landscape.

India’s Low Per-Trade Value: A Key Concern

One of the major points raised was India’s relatively low per trade value in options, which is approximately USD 100. Compared to other developed nations, where the per trade value is significantly higher, India’s position as the number one derivatives trader, as recognized by the World Federation of Exchanges (WFE), came under scrutiny. Experts argued that India’s trade volumes may not be as substantial as they appear when factoring in the low per trade value, likening it to a comparison of grapes to watermelons in terms of scale. This disparity raises concerns about the sustainability of India’s dominance in the global derivatives market.

The Issue of Multiple Expiry Dates and the Need for Standardization

Another contentious issue raised during the discussion was the recent trend of exchanges, such as MSEI and NCDEX, introducing daily expiry contracts on different dates. This move, according to experts, goes against the Securities and Exchange Board of India (SEBI)’s regulations, which aim to limit the number of expiries in a week to protect small investors. With more exchanges potentially launching their own daily expiry dates, there is growing concern that this could lead to an overcrowded expiry schedule, making it difficult for retail investors to keep track.

Panelists suggested that a single expiry date for all exchanges each week would be a more streamlined approach to ensure investor protection and maintain market stability. This would prevent fragmentation of the market and ensure that small investors are not overwhelmed by too many expiry dates throughout the week.

SEBI’s Role: A Supportive Regulatory Framework

In response to concerns about market regulation, participants praised SEBI for its proactive stance in bringing about stringent regulations over the years. They acknowledged that although some of these measures may have seemed challenging at the time of their introduction, they have played a pivotal role in fostering greater investor trust and participation in the market.

The CEO of the National Stock Exchange India limited (NSE) Ashishkumar Chauhan emphasized the support of the exchange for SEBI’s measures, noting that these regulations have significantly contributed to the growth and development of the market. In particular, the strengthening of risk management protocols has been vital in attracting more investors and instilling confidence in the derivatives market.

Managing Risks: A Focus on Early Rollover Incentives

The panel also touched on the increasing complexity of managing various types of risks in the derivatives market. One key risk discussed was concentration risk, which can be mitigated by offering incentives for early rollovers. By encouraging traders to roll over their positions earlier in the cycle, and disincentivizing last-minute rollovers, market stability could be improved. This approach, experts suggested, could reduce the pressure on the market as expiration dates approach, ensuring a more orderly process for investors and traders alike.

The Evolving Landscape of Risk Management

As the market continues to evolve, experts pointed out that there is no “magic pill” for risk management. The challenges in derivatives trading are dynamic, with new risks emerging regularly. As these risks become more complex, it is expected that regulators will need to adapt and introduce new measures to address them. Panelists agreed that the ability to remain flexible and responsive to changing market conditions will be essential in safeguarding both the integrity of the market and the interests of investors.

In closing, the discussion underscored the importance of continuous collaboration between exchanges, regulators, and market participants to ensure that the Indian derivatives market remains robust and secure for all investors.