Tuhin Kanta Pandey, Chairperson of the Securities and Exchange Board of India (SEBI), has moved to reframe one of the most heated conversations in Indian retail investing — the question of whether ordinary investors should be allowed into the futures and options market at all.
His answer is more nuanced than either side of the debate tends to acknowledge.
F&O is not one thing
Speaking to ET Now, Pandey opened with an immediate correction to the premise of the question. The term “F&O” — futures and options — groups together two instruments that behave in fundamentally different ways, he argued, and treating them as a single problem leads to blunt, unhelpful conclusions.
“F is different and O is different,” he said. “It is like saying REITs and InvITs — they may be together as something, but they are quite different.”
Options, he explained, carry a premium structure and give the holder a right — to buy or sell — rather than an obligation. Futures work differently, with delta exposure that responds to price moves in a distinct manner. Conflating them, Pandey suggested, is the equivalent of using a broad brush where a surgeon’s knife is needed.
His concern is not merely semantic. The futures market and long-dated options serve critical economic functions — price discovery, hedging, liquidity — that underpin the broader market ecosystem. Casting the entire derivatives segment as a problem area risks damaging public confidence in instruments that function largely as intended.
The real culprit: Short-dated options
When pressed to identify where the genuine risk to retail investors lies, Pandey was precise. The issue concentrates sharply in short-dated options — contracts approaching expiry, where premiums are low, leverage is effectively extreme, and the psychological pull toward speculative punting is strongest.
“Eventually, you will come down to the short-dated option, the expiry-day problems, and the hyperactivity,” he said. “The premiums are low. Then it becomes like a punting habit.”
It is a dynamic SEBI has been monitoring closely. The regulator’s own data — now widely cited — showed that 92% of individual traders in the equity derivatives segment incurred losses. Rather than treating that finding as a reason to restrict access across the board, SEBI chose to lead with transparency, publishing the aggregated loss data publicly to shatter what Pandey described as myths being perpetuated by “wrong influencers.”
Regulation with a range of options
The disclosure strategy appears to have had a measurable impact on investor awareness. Pandey noted that many retail participants had no sense of the scale of losses occurring across the market — only their own experience, which they might rationalise as an anomaly. Seeing the collective picture changed the conversation.
SEBI has since introduced statutory warnings that appear when traders initiate derivatives positions — a pop-up alert designed to ensure informed participation rather than restrict access outright.
Pandey reached for an analogy that captures the regulatory philosophy clearly. “You are not banning cigarettes. You are banning cigarettes in some places, and for non-adults you are not allowing them.
For adults, you say public places, and then you say still I will have a statutory warning.”
The comparison is deliberate. Regulation, in his framing, is not binary. There is a spectrum between outright prohibition and complete openness — and SEBI’s current approach sits firmly in that middle ground, prioritising disclosure, awareness, and targeted friction over blanket eligibility restrictions.
What comes next
Pandey stopped short of signalling imminent rule changes on minimum eligibility criteria for derivatives trading. But his comments make clear that SEBI’s focus will remain trained on the specific corner of the market where harm is most concentrated — short-dated, high-frequency options activity around expiry dates — rather than the derivatives market as a whole.
For investors, the message is pointed: know what you are trading, understand the data, and read the warning.