SEBI Looks to Deepen Cash Markets, Improve Derivatives with Longer-Tenure Products

The Securities and Exchange Board of India (SEBI) is planning key reforms in the capital market, according to Chairman Tuhin Kanta Pandey. Speaking at the FICCI Capital Market Conference 2025, he said SEBI is considering extending the tenure of equity derivatives and creating a regulated platform for pre-IPO companies to trade shares.

Pandey explained that the current equity derivatives market is dominated by ultra-short-term trading, which raises risks for investors and the market. SEBI aims to bring in longer-tenure derivative products to encourage hedging and long-term investment strategies. “We will consult stakeholders and improve the maturity profile of derivative products in a calibrated manner,” he said.

He also pointed out that while cash market volumes have doubled over the last three years, the growing dominance of speculative short-term trades has caused concern. A recent SEBI study showed that 91% of retail traders in futures and options (F&O) lost money in FY25, with total losses crossing ₹1 lakh crore. This, he said, could otherwise have gone into responsible investments and capital formation.

Another major proposal is a pilot trading platform for pre-IPO companies. Pandey said the initiative will allow unlisted companies to trade shares under SEBI’s supervision before their IPOs, subject to disclosure norms. The move aims to provide more transparency to investors and reduce reliance on the unregulated grey market.

The proposed platform may also allow regulated trading during the three-day period between IPO allotment and stock exchange listing, which is currently used by the grey market for unofficial share trading.

On technology, Pandey underlined the importance of artificial intelligence (AI) in markets. He said AI can help in customer engagement, risk assessment, fraud detection, and financial inclusion but stressed that it should “assist, not replace human judgment.”