SEBI's Push for Long-Term Derivatives: Will It Actually Deepen India's F&O Market?

Trigger: SEBI Chairman's address at ET NOW Market Summit, June 12, 2026

On June 12, 2026, SEBI Chairman Tuhin Kanta Pandey signalled a significant shift in the regulator's direction for India's derivatives market. Speaking at the ET NOW Market Summit in Mumbai, he stated that "development of longer-term futures and options contracts in the equity derivatives market will be an important part of deepening the capital markets." The announcement is notable for what it represents: after years of restricting short-term speculative derivatives activity, SEBI is now looking to build out the long end of the F&O curve.

But long-term derivatives in India are not a new concept. They already exist. The question is why they have not taken off, and whether SEBI's intent, without addressing the structural reasons for their failure so far, will produce a different outcome this time.

The Context: What SEBI Has Already Done to Fix F&O

India became the world's largest derivatives market by volume, with notional turnover of $6.4 trillion per day and annual option premiums of $2.2 trillion in 2024. But SEBI's own study found that 93% of individual F&O traders lost money. The regulator responded from November 2024 with a series of structural restrictions:

• Weekly expiries limited to one per exchange (down from as many as 20 per month)
• Minimum contract size raised substantially
• Upfront collection of option premiums mandated
• Calendar spread benefits removed on expiry day

Those measures targeted the short end of the F&O curve (weekly expiries that had become instruments of speculative retail participation). The new direction targets the opposite end: extending contracts further out in time to encourage institutional hedging, long-term position-taking, and more structured risk management. The logic is sound. The implementation challenge is significant.

The Reality Check: Long-Term Contracts Already Exist and Are Not Working

Before evaluating what SEBI is proposing, it is worth understanding the current state of long-term derivatives in India. Nifty, Bank Nifty, and Nifty Next already offer quarterly options contracts extending beyond the standard three near months. On individual stocks, the current structure offers only the near month, mid-month, and far month.

The volume cliff between December 2026 and March 2027 is stark. This is not a function of investors being unaware of longer-dated contracts. It is a function of the structural problems that make these contracts unattractive to both buyers and sellers.

The Two Problems That Kill Long-Term F&O Liquidity

Problem 1: Bid-ask spreads become prohibitively wide

Problem 2: MTM margin risk has no circuit filter

The Three Missing Links

For long-dated derivatives (known in mature markets like the US as LEAPS, or Long-term Equity AnticiPation Securities) to function in India, three structural elements must be in place before the product can be expected to attract meaningful participation.

What Will Work vs What Needs to Be Built First

The infrastructure gap

The Global Parallel: How LEAPS Work in the US

In the United States, LEAPS (Long-term Equity AnticiPation Securities) are exchange-listed options with expiration dates more than one year away. They were introduced on the CBOE in 1990 and have become a standard institutional tool for multi-year hedging, stock-replacement strategies, and leveraged long-term positions.

The US LEAPS market works because all three structural conditions are present. Market makers are obligated to maintain continuous two-sided quotes. The institutional sell-side (banks, insurance companies, hedge funds) actively writes LEAPS as part of structured product creation and portfolio management. And the US stock lending market is deep and liquid, making stock-covered LEAPS strategies viable at scale.

India is not starting from zero. It has the exchange infrastructure, the legal framework, and a growing institutional investor base. But the cart is not yet in front of the horse; it is simply not there yet. SEBI's intent on June 12 is a necessary first step. The structural work that must precede the product launch is the more important second step.

Conclusion

SEBI's direction on longer-term F&O contracts is the right policy move for a market that has over-indexed on short-dated speculation. Long-dated derivatives can serve genuine economic functions: corporate hedging of equity compensation plans, institutional portfolio protection, and multi-year structured product creation. But the data from existing long-dated Nifty contracts, where March 2027 liquidity is functionally zero, tells a clear story. The problem is not that investors do not want the product. It is that the market structure does not yet support it. Mandatory market making, SLB reform, and expanded institutional sell-side participation are not nice-to-haves that can follow the product launch. They are preconditions. If SEBI launches long-term stock derivatives without building these foundations first, the contracts will sit on the exchange with thin volumes and wide spreads, exactly as the longer Nifty quarterly contracts do today. Intent is the starting line. Infrastructure is the finish line.

FAQs

1. What are long-term derivatives and why is SEBI interested in them?

Long-term derivatives are futures and options contracts with expiry dates significantly further out than the standard one to three month contracts. In mature markets, these are known as LEAPS (Long-term Equity AnticiPation Securities). SEBI Chairman Tuhin Kanta Pandey signalled on June 12, 2026 that expanding these contracts is a priority for deepening India's equity derivatives market, with a focus on supporting institutional hedging rather than short-term speculation.

2. Do long-term F&O contracts already exist in India?

Yes. Quarterly option series extending beyond three months already exist on Nifty, Bank Nifty, and Nifty Next indices. However, liquidity falls off sharply beyond the six-month horizon. On June 12, 2026, Nifty March 2027 contracts had total volumes of just 240 lots and open interest of 340 lots, versus approximately 90,000 combined volumes for December 2026 contracts. On individual stocks, F&O is currently available only for the near month, mid-month, and far month.

3. What is a market maker and why does it matter for long-dated F&O?

A market maker is an entity obligated to continuously post both buy and sell quotes for a contract at specified maximum spreads. Without market makers, long-dated contracts suffer from wide bid-ask spreads that make them uneconomic for most users. Market makers are essential infrastructure; without them, the product exists on paper but not in practice. Any LEAPS development plan must address market maker obligations as a first step, not an afterthought.

4. What is Securities Lending and Borrowing and why is it critical for stock LEAPS?

Securities Lending and Borrowing (SLB) allows investors to temporarily borrow shares they do not own to fulfil delivery obligations, for example, when an institution has sold a call option and needs to deliver shares if it is exercised. Without a deep SLB market, institutions cannot safely write long-dated single-stock options. India's SLB market is currently thin in volume and narrow in security eligibility. Reform of SLB is a precondition for any viable long-term single-stock derivatives market.

5. Why do 93% of F&O traders in India lose money?

SEBI's own study found that 93% of individual F&O traders lost money, while proprietary trading desks and foreign institutions consistently profited. The mismatch reflects a structural information and risk management advantage held by sophisticated participants. Short-dated weekly options with tight expiries amplified this dynamic by encouraging high-frequency retail speculation. SEBI's recent restrictions on weekly expiries and higher contract sizes were designed to reduce retail participation in this losing trade. Long-dated contracts, by design, attract different participants with longer time horizons and more structured hedging objectives.

Disclaimer: This article is for general information and educational purposes only. It does not constitute investment advice, a recommendation, or an offer to buy or sell any securities or financial instruments. References to SEBI's announced intent are based on publicly reported statements at the ET NOW Market Summit on June 12, 2026 and do not represent a formal regulatory circular or rule. Derivatives trading involves substantial risk of loss and is not suitable for all investors. F&O volume and open interest data cited are from a single trading day and are indicative only. Please consult a SEBI-registered investment adviser before making any investment decision involving derivatives.