Sebi’s KVR Murty Says Derivatives Trading May Need More Guardrails

Sebi Weighs Fresh Protections as Expiry-Day Derivatives Activity Intensifies

The regulator wants investors better informed about derivatives risks, while keeping open how much guidance should come from Sebi and how much from brokers.

Expiry-day activity puts investor protection back in focus

Sebi may consider additional safeguards for derivatives trading as activity rises on expiry days, Murty said at the Business Standard BFSI Summit. He did not set out a specific measure or timetable. Instead, he described a need to assess whether investors require more guidance, while leaving unresolved whether Sebi or brokers should take the lead.

That distinction matters. The remarks point to a regulatory question about how to make risks clearer without barring investors from a market segment. Murty said Sebi’s role was to inform investors about product risks, not prevent them from investing in particular segments. The regulator’s derivatives studies, he added, are intended to place those risks in the public domain and support informed decisions.

For investors, more safeguards could mean closer attention to how products and risks are communicated, especially around periods of concentrated activity. But the comments should not be read as a settled policy change. Murty emphasised a balance between over-regulation and under-regulation, with investor interests and market integrity as the priorities.

Surveillance technology will retain human oversight

Sebi has developed in-house artificial intelligence tools to strengthen market surveillance and improve the efficiency of regulatory work, Murty said. The regulator monitors market activity on a near-real-time basis and has used its capabilities to support interim orders and other enforcement actions.

Murty said human oversight would remain central to AI-led surveillance. That assurance is significant as regulators use technology to process market activity: the tools may help identify issues, but Sebi’s stated approach keeps people involved in regulatory functions. The regulator is also working with market participants and overseas regulators on preparedness for risks quantum computing could pose to the cryptographic systems underpinning financial market infrastructure.

Consultation and proportionate enforcement shape the approach

Murty cited the changes to the closing auction session framework as an example of regulation adapting through consultation. Sebi modified its initial proposal after receiving more than 20,000 responses in the first consultation, then held another round before finalising the framework. He said market structures require a tailored approach rather than a uniform template.

He also described Sebi’s enforcement response as graded. Minor transgressions that do not cause large-scale investor losses or compromise market integrity are not necessarily met with severe punishment; advisories, warnings and settlement mechanisms can also be used. For market participants, this indicates that the regulator considers the extent of harm when choosing a response, rather than treating every breach alike.

Broader agenda spans disclosures, governance and market access

Sebi is reviewing its Listing Obligations and Disclosure Requirements and Issue of Capital and Disclosure Requirements regulations, as well as the framework for small and medium enterprises. Murty also identified priorities including deepening the bond and cash markets, expanding securities lending and borrowing, reviewing short-selling rules, and simplifying KYC, onboarding and registration requirements.

The agenda extends to corporate reporting and governance. Murty called for closer coordination among Sebi, the National Financial Reporting Authority and stock exchanges, which he described as the first line of defence in examining financial reporting alongside corporate actions and trading activity. He also said companies should strengthen boards and increase the participation of independent directors and audit committees.

Taken together, the priorities show a regulator balancing protection with market development. Their effects will depend on the detailed rules and how they are implemented; the remarks themselves do not establish specific new requirements.

Key Highlights

• Sebi may consider further guardrails for derivatives amid heightened expiry-day activity.
• The regulator has not decided whether Sebi or brokers should lead investor guidance.
• Sebi uses in-house AI for surveillance, with human oversight remaining central to its approach.
• The closing auction framework was revised following two rounds of consultation.
• Regulatory priorities include disclosure rules, SME frameworks, bond-market depth and simpler onboarding.

Investor Note: Investors should treat the comments as an indication of Sebi’s areas of focus, not as confirmation of imminent derivatives rule changes. Any eventual measures, and their practical effects, will depend on the regulator’s detailed proposals and implementation.