Surge in F&O Trading Volumes Sparks Concern Over Retail Investor Risks: RBI Report

The RBI's Financial Stability Report highlighted a significant rise in Futures and Options (F&O) trade volumes, noting potential risks for retail investors who lack proper risk management strategies. With F&O volumes increasing by 42.8% from 2022-23 to 2023-24, regulatory bodies like SEBI are reviewing systemic risk management measures and investor protection protocols.

The latest RBI Financial Stability Report raises alarms over the dramatic increase in Futures and Options (F&O) trading volumes, emphasizing the vulnerability of retail investors without adequate risk management. According to the report, F&O participation surged by 42.8% between 2022-23 and 2023-24, escalating concerns about market volatility and investor exposure.

Intriguingly, while notional trading volumes have skyrocketed, premium turnover has shown only linear growth. The ratio of premium turnover to cash market has remained consistent over the past three years, indicating a complex interplay between derivatives and cash markets. However, the RBI underscores the critical nature of investor protection, citing a SEBI study that found 89% of individual F&O participants incurred losses between 2018 and 2021.

Given these dynamics, SEBI aims to fortify settlement systems and conduct rigorous stress tests to accommodate contingencies. An expert working group is scrutinizing F&O markets to enhance investor protection and manage systemic risks, thus safeguarding market integrity.

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