A booming Indian stock market has drawn retail investors to the riskiest corners of the market and their share of derivative trading volumes has risen from 2% in 2018 to 41% now, Madhabi Puri Buch chairperson of the Securities and Exchange Board of India said on Thursday.

The notional value of index options traded more than doubled in 2023-24 to $907.09 trillion from the year before.

"A large amount of household savings are going into speculative trading," said Buch.

"This could lead to systemic risks and investor protection concerns."

Speculation via short-term derivative contracts is also a concern, said Buch, adding that a committee has been set up to examine steps needed to curb this frenzy.

The comments follow a warning from India's federal Finance Minister Nirmala Sitharaman, who said last month that an unchecked explosion in retail trading of futures and options can create future challenges not just for the markets, but also for investor sentiment and household finances.

A report released by India's central bank earlier on Thursday echoed those concerns.

The regulator also introduced new criteria to decide on stocks that can be linked to derivative products, such as futures and options, as proposed in a discussion paper earlier this month.

The total number of stocks eligible for derivative trading will rise marginally, Buch said.

Separately, the regulator asked brokers and mutual funds to stop using the services of unregulated financial influencers for marketing and advertising campaigns.

The decision was taken to address concerns related to "certain persons, including unregulated entities, inducing investors to deal in securities based on inappropriate claims," the Securities and Exchange Board of India (SEBI) said in a press statement issued after a board meeting.

It, however, added that financial influencers engaged in investor education will be exempt from the new restrictions.

India had 154 million trading accounts as of April 2024, according to SEBI data, a more than four times jump from the 36 million trading accounts in April 2019.

EASIER DELISTING

The regulator's board also approved changes to delisting rules that would make it easier for companies to exit from stock exchanges.

Companies can now offer their shareholders fixed prices for shares as an alternate mechanism to delist from stock exchanges.

Currently, delisting is carried out via reverse book-building, in which shareholders place offers for the price at which they would sell securities back to large shareholders, who can influence company policy.

The fixed price must be at least 15% above a floor price and will be determined by rules set by the regulator.