SEBI Chief Madhabi Puri Buch Flags F&O Volume Surge as a Major Macro Issue in Indian Stock Market

Madhabi Puri Buch, Chairperson of the Securities and Exchange Board of India (SEBI), stated on Friday that the increase in futures and options (F&O) trading volume is now a significant macroeconomic concern, rather than just a small investor safety issue.

“F&O volume surge has now become a macro issue and not just a micro issue of investor safety,” Buch said, according to a PTI report. She also raised concerns about household savings potentially going into speculation rather than contributing to capital formation.

Financial Stability Report (FSR)

The Reserve Bank of India (RBI) recently released its Financial Stability Report (FSR) for June 2024, highlighting the rise in derivative market trading. This increase in F&O market trading volumes can pose risks for retail investors who may not follow proper risk management practices.

The equity derivatives segment saw a 42.8% increase in trader participation, reaching 95.7 lakh in the financial year 2023-24, compared to 65 lakh in 2022-23.

Regulatory Imperative,

“Since derivatives are more complex than the underlying assets, protecting investors is a key regulatory imperative,” stated the RBI’s FSR report.

Despite the concerns about F&O trading, Buch mentioned that there is no current reason to worry about market valuations from a regulatory perspective. She also discussed SEBI’s recent proposal to allow mutual funds to offer new asset classes, emphasizing that mutual funds provide a “safe space” for trading in derivative products.

In June, PTI reported that SEBI had formed an expert working group under the Secondary Markets Advisory Committee to review India’s F&O market from both an investor safety and risk management standpoint.