SEBI’s trading framework tightens screws on F&O -- are small traders feeling the heat?

Small retail traders are increasingly feeling the pressure in India’s futures and options (F&O) market as higher costs, stricter margin norms and reduced trading flexibility reshape the derivatives landscape. The impact is being felt even as the Securities and Exchange Board of India (SEBI) has ruled out any immediate regulatory changes in the equity derivatives segment.

SEBI Chairman Tuhin Kanta Pandey said last week that the regulator will continue with the existing framework, including the current weekly expiry structure. His remarks came after the Union Budget sought to rein in excessive speculative activity through higher transaction taxes. “At this point, we are not contemplating any measures, and the framework that has been put in place will continue,” Pandey said, clarifying that there would be no fresh curbs on futures and options trading and no near-term changes to weekly expiries.

Adding to the cost pressures, Finance Minister Nirmala Sitharaman has raised the securities transaction tax (STT) on derivatives in the Union Budget 2026–27. The STT on futures contracts has been increased to 0.05% from 0.02%, while the levy on options—both on the premium and on exercise—has been hiked to 0.15% from the earlier 0.1% and 0.125%. STT rates on other market segments remain unchanged. Even as the tax burden on derivatives trading rises, the market regulator is simultaneously stepping up efforts to deepen and broaden participation in the corporate bond market.

Market participants say the combined impact of higher taxes and earlier structural changes has materially altered the economics of F&O trading, particularly for small traders. Financial expert and chartered accountant Nitin Kaushik said these are not incremental tweaks but changes that directly increase the capital required to trade.

One of the most significant shifts has been the sharp rise in entry costs. Earlier, traders could take positions in contracts valued at ₹5–10 lakh with capital of around ₹1.2 lakh. Now, typical contract values have climbed to ₹15–20 lakh, pushing the capital requirement to roughly ₹3.5 lakh. According to Kaushik, trading a single lot now requires nearly three times more money than before.

Trading opportunities have also narrowed with a reduction in weekly expiry days. Earlier, multiple indices offered weekly expiries across six days of the week. This has now been restricted to just two weekly expiries, limited to Nifty and Sensex. The change has reduced daily expiry-based trading by nearly 70%, curbing rapid-fire speculative strategies.

Leverage has been tightened as well. Brokers are no longer permitted to offer intraday credit for options buying, requiring traders to pay the full premium upfront. For instance, an option costing ₹20,000 now requires the same amount in cash, eliminating leverage-driven trades.

Costs have risen further for option sellers, particularly on expiry days. An additional 2% margin is now imposed on expiry-day option selling. A trader with a normal margin requirement of ₹20 lakh must therefore arrange an extra ₹40,000 for that day alone. Hedging strategies have also become more expensive, as calendar spread margin benefits drop to zero on expiry days, forcing traders to post full margins on both positions.

Adding to the pressure are random intraday margin checks by exchanges. Even a temporary shortfall can attract an immediate 1% penalty, leaving little room for intraday position management.

According to Kaushik, traders with capital below ₹5 lakh will find F&O trading significantly more challenging under the new regime. With higher taxes, reduced leverage and stricter discipline, the changes signal a clear push towards a more cautious, well-capitalised derivatives market.