India’s capital markets regulator, the Securities and Exchange Board of India (Sebi), has indicated that further structural reforms to the country’s vast derivatives market may be on the horizon, following recent moves to curb risky options trading and its unprecedented action against US trading firm Jane Street.
In an exclusive interview with the Financial Times, Sebi chair Tuhin Kanta Pandey emphasized the regulator’s commitment to tackling unfair trading practices to protect small investors, noting that while trading volumes in options have decreased, the decline “has not been to the extent that is desirable.”
India’s derivatives market, particularly options trading, has exploded in recent years. According to industry body the FIA, the country accounted for nearly 90% of global options trading volume last year, even as a Sebi report revealed that nine out of ten retail traders lost money.
Pandey underscored the need for reforms: “The derivatives market needs some structural reforms,” he said, adding that Sebi is actively exploring ways to strengthen market integrity without stifling growth.
“We’ve always said this derivative market is important for us, there’s no way we will kill the market. You develop the market, you don’t kill it.”
Last month, Sebi delivered a stunning blow to the market by accusing Jane Street of running a “sinister scheme” to manipulate India’s markets, freezing over $560 million of the Wall Street firm’s alleged illegal gains. Jane Street, which reportedly made over $4 billion in profits in India over the past two years, has denied the allegations and plans to challenge Sebi’s order.
Pandey dismissed Jane Street’s defense that its index arbitrage was legitimate, stating:
“Manipulation is where you are artificially creating arbitrage… I know these guys are brilliant mathematicians and PhDs, but we can have PhDs from our side. We are not constrained.”
Despite the severity of the Jane Street case, Pandey said it is not indicative of widespread manipulation by other algorithmic traders in India’s markets.
Sebi’s crackdown on excessive retail speculation in derivatives coincides with a dramatic rise in participation: the number of individual traders in derivatives more than doubled to 9.6 million over three years to March 2025, with collective annual losses soaring from $4.7 billion to $12.2 billion, according to Sebi’s report.
To rein in risky behavior, Sebi has introduced higher entry barriers and other reforms, resulting in a 20% reduction in retail traders by June this year compared to a year earlier. However, Pandey admitted the regulator is still not fully comfortable with the data and is releasing it transparently to raise awareness.
Looking ahead, Sebi expects India’s overall investor base to nearly triple to 400 million by 2030, driven by younger generations favoring market investments over traditional bank savings. Pandey stressed Sebi’s responsibility to “sensitize” these investors about the risks inherent in futures and options trading.
As the Financial Times reports, Sebi’s approach reflects a balancing act between fostering a thriving derivatives market essential for liquidity and hedging, and protecting vulnerable retail investors from losses driven by speculative excess.
