Sebi F&O rules: What it means for brokerage firms, stock exchanges and traders

The Securities and Exchange Board of India (Sebi) has introduced a series of measures aimed at curbing speculative retail trading in the Futures and Options (F&O) segment.
These new regulations, set to take effect in phases beginning November 20, could significantly impact market volumes and dampen retail trading sentiment, according to market analysts.
Among the most impactful changes is the restriction of weekly expiry contracts to one per exchange, which is expected to hit trading volumes hard. Sebi will also raise the contract size from Rs 5-10 lakh to Rs 15 lakh, further tightening the rules for F&O trading.
Experts say these moves, along with previously implemented measures like the higher Securities Transaction Tax (STT) on F&O trades, could lead to a dip in revenues for stock exchanges and brokerage firms.
According to Trivesh D, COO of Tradejini, brokers could see a drop in both top-line and bottom-line performance as a result of Sebi’s new rules.
“With the increase in contract size and restrictions on weekly expiries, we are likely to witness a revenue reduction of at least 20%. This is a major shift for F&O traders and brokers alike,” he said.
Sebi’s decision to increase the contract size aims to limit the participation of smaller, retail investors in high-risk F&O trading, where many have historically suffered losses.
In its filing, Sebi also disclosed that from April 2021 to March 2024, Indian individual traders lost a staggering Rs 1.81 lakh crore in F&O trading, with only 7.2% of traders posting profits.
Experts argue that the complex nature of derivatives trading demands a level of expertise and infrastructure that most retail investors lack.
Starting November 20, several new measures will be implemented, including limits on weekly expiries, an increase in contract sizes, and the introduction of an additional Extreme Loss Margin (ELM) to protect against tail risks.
These new guidelines are expected to shake up the F&O market and force brokers to adjust their operations. The upfront collection of option premiums and the elimination of calendar spread treatment on expiry days will also add more layers of complexity for market participants.
The industry remains divided on Sebi’s approach.
While some argue that these regulations will help bring stability to the markets, others fear over-regulation may reduce liquidity and curb innovation.
“The new rules may limit speculative activity, but they could also stifle creativity in trading strategies,” said Puneet Sharma, CEO and Fund Manager at Whitespace Alpha.
He added that while market resilience may improve, investors and brokers alike will face significant challenges in adjusting to these stricter norms.
Shruti Jain, Chief Strategy Officer at Arihant Capital Markets, believes the measures are ultimately in the best interests of retail traders.
“These regulations are long overdue. Many retail traders dive into F&O trading without fully understanding the risks. The new measures are designed to protect them from heavy losses,” she said.
Despite the initial shock to market volumes, analysts say the long-term impact of Sebi’s regulations will likely depend on how well brokers, traders, and retail investors adapt to the new landscape.