The Securities and Exchange Board of India’s (Sebi’s) expert working committee on derivatives trading has set the bar higher for retail investors. The proposals include increasing the lot sizes of futures and options (F&O) contracts, raising margins around expiry dates, and reducing the number of weekly options contracts.

Sources aware of the development said the recommendations will be discussed by Sebi’s Secondary Market Advisory Committee (SMAC) on July 15.

The committee, led by former RBI executive director G Padmanabhan, has been deliberating on the mechanisms to protect retail investors in the futures and options segment. The committee also includes brokers associations, officials from stock exchanges, academicians, a whole-time member (WTM) of Sebi, and others.

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According to sources, the key proposals include increasing the lot size from the current `5 lakh to `20-25 lakh. In addition, it has said that the number of expiries per week should be reduced to one per exchange.Most of the proposals revolve around raising margins either directly or indirectly by raising the minimum lot sizes, which will discourage smaller investors from trading in F&O.“

Some decisions regarding tighter norms for derivatives trading could be taken by the regulator later this month or in August,” a source said, stressing that something may come even before the Budget, which is scheduled on July 23.Deepak Shenoy, founder, Capital Mind, wrote on X: “These will help, undoubtedly, in reducing the froth in this market. I like the increase in contract size, which means more serious players will come in and you get a lot less of the gambler territory.”

He added that the one expiry per week is a decent move to reduce speculative interest. But he was sceptical about it because there has been significant interest even with one day of expiry earlier.The committee’s recommendations come at a time when there have calls from regulators, exchanges and even finance minister Nirmala Sitharaman to curtail retail participation in the F&O segment.

A few months ago, Sebi’s chairperson Madhabi Puri Buch had expressed her concern over retail investors participating in the derivatives market. “I am always a little confused and surprised as to why people continue to do that (betting in F&O) knowing that the odds are not in their favour at all,” she had said.

Her comments came against the backdrop of a Sebi report which said that 89% of retail F&O investors end up in losing money.

Also, the share of young individual traders’ (20-30 years) participation in equity F&O — especially in index options and stock options — went beyond 35% each, from nearly 11% in FY19. The number of individual traders in index options and stock options has risen by 8 times and 5 times, respectively, in the past 3 years.The need for tighter norms for F&O has arisen due to the perceived risks that it poses for the household savings, said the CEO of a top-tier AMC in India.