Unchecked explosion of retail trading can spark market stability concerns, India finance minister says

India's Finance Minister Nirmala Sitharaman speaks at the Global Fintech Fest in Mumbai

MUMBAI (Reuters) -Any unchecked explosion of retail trading could trigger challenges for investor sentiment and markets, India's finance minister said at a financial markets event organised by the Bombay Stock Exchange on Tuesday.

"Any unchecked explosion in retail trading of futures and options can create future challenges, not just for the markets, but for investor sentiment and household finances," Nirmala Sitharaman said in her first public comments on the issue.

Regulators should proactively consult with the market for further tweaking of regulations, she added.

India's top financial regulators will form a committee to assess stability risks emerging from a surge in derivatives markets and suggest policy changes if required, two sources familiar with the matter had told Reuters in April.

Options trading in India has soared in the last five years, fuelled mainly by retail investors. The notional value of index options traded more than doubled in 2023-24 to $907.09 trillion from $447.69 trillion a year ago, data from exchange operator NSE showed.

The ratio of the notional value of derivatives traded in India to more traditional cash trading is 422 times, the world's highest, Axis Mutual Fund said in an October 2023 report.

In most markets, derivatives volumes now account for 5 to 15 times cash market volumes, it added.

(Reporting by Jayshree P Upadhyay in Mumbai; writing by Swati Bhat; Editing by YP Rajesh)