In a much-needed update to market participants, Ananth Narayan, a Whole-Time Member (WTM) of the Securities and Exchange Board of India (SEBI), has stated that the market regulator is not considering conducting any exams or tests to evaluate investor suitability for Futures and Options (F&O) trading.

His comment came during a media briefing following SEBI’s board meeting held yesterday, on March 24, 2025, effectively quelling any speculation around whether SEBI would enforce stricter eligibility norms for investors in retail participation in India’s booming derivatives market.

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No Exams, But Focus Remains on Risk Awareness

Addressing the recent reported rumors, Narayan said, “There is no proposal under consideration to conduct exams or impose a mandatory suitability test for retail investors in F&O.” He further added, “Are we specifically looking at anything (as entry barriers like the National Institute of Securities Markets (NISM) exams for investors) at this point in time? No.”, as per sources from Moneycontrol.

The F&O segment has witnessed exponential growth in recent years, much of it fueled by enthusiastic retail participation. Narayan has reiterated that the market regulator’s focus would instead be on enhancing investor awareness and improving existing market infrastructure, not on gate-keeping.

Increased Surge in Retail F&O Participation

India’s derivatives market is on track to become one of the largest in the world, much of it because of retail investors, who account for nearly 35% of the total F&O volumes as of early 2025, according to NSE data. Trading platforms like 5paisa, Zerodha, and Groww, have helped further to provide democratized access, making options trading more accessible, and easy-to-use, bringing in a higher number of investors into the market.

However, this increased rise in market participation has also raised red flags for stock market regulators. Many regulators report that retail traders have been found lacking adequate risk knowledge, which results in them booking significant losses, specifically in short-dated weekly options, where s volatility is high and its margin for error low.

SEBI’s Recent Regulatory Moves

Although SEBI is not planning exams, it has introduced several measures over the past few months to curb over-speculation and protect retail investors:

• Contract Size Increase: The minimum lot size for index derivatives was raised to ₹15 lakh in November 2024, making it harder for small investors to take large, leveraged bets.
• Fewer Weekly Expiries: Exchanges now offer a limited number of weekly expiries to reduce speculative frenzy around expiry days.
• Stricter Margin Requirements: An additional 2% Extreme Loss Margin (ELM) was mandated for all open short option positions on expiry days to reduce risk.

These reforms are aimed at tempering the increasingly speculative nature of F&O trading, without shutting the door on retail participation entirely.

No Blanket Ban or Restrictions Coming

Ananth Narayan also confirmed that SEBI has no plans for a blanket ban on retail investors trading in derivatives, a concern that had been widely circulated on social media following the regulator’s tightening of rules in 2024.

Instead, SEBI is focusing on “smarter regulation”, developing better risk measures, improving connectivity between cash and derivatives markets, and pushing for more transparent disclosures from brokers and intermediaries.

What This Means for Retail Traders

For retail investors, the key takeaway is that F&O trading is not going anywhere, but the game is changing.

Brokers and trading platforms may soon be required to show real-time risk metrics and provide better educational resources to users before enabling them to trade complex instruments. Tools that help investors assess potential loss scenarios and margin calls could become the norm.

Also, with fewer expiries and larger lot sizes, traders will need to be more strategic and disciplined in their approach, rather than rely on short-term speculation.

Final Thoughts

SEBI’s clarification about not conducting exams for F&O investors is a relief for many market participants. But it’s also a reminder that retail traders must take responsibility for understanding the risks they’re taking on.

While the regulator continues to strike a balance between access and caution, investors should focus on building their knowledge, using proper risk management, and avoiding herd-driven decisions.

In the end, the best protection for retail investors may not come from regulation, but from education, discipline, and informed decision-making.