Q. Consider the following statements:
I. India accounts for a very large portion of all equity option contracts traded globally thus exhibiting a great boom.
II. India’s stock market has grown rapidly in the recent past even overtaking Hong Kong’s at some point of time.
III. There is no regulatory body either to warn the small investors about the risks of options trading or to act on unregistered financial advisors in this regard.
Which of the statements given above are correct?
(a) I and II only
(b) II and III only
(c) I and III only
(d) I, II and III
✅ Answer with Explanation
Statement I: Correct ✅
- As per National Stock Exchange (NSE) data and Bank for International Settlements (BIS) reports, India has become the largest hub for equity derivatives, especially options.
- In 2023, over 80% of global equity index option trades happened on Indian exchanges like NSE.
Statement II: Correct ✅
- In January 2024, India’s stock market briefly overtook Hong Kong to become the fourth largest stock market in the world in terms of market capitalization.
- Market cap: India – USD 4.33 trillion vs Hong Kong – USD 4.29 trillion (Bloomberg data).
Statement III: Incorrect ❌
- India does have a regulator: the Securities and Exchange Board of India (SEBI).
- SEBI is a statutory body (1992) that oversees the securities market, regulates derivatives, warns investors, and acts against unregistered financial advisors.
👉 Correct Answer: (a) I and II only
Also See: Sources of Income of RBI: UPSC Prelims 2025 Question
📊 Detailed Explanation of Indian Stock Market Boom
Growth of Equity Options in India
- India dominates the global equity options market, reflecting deep retail and institutional participation.
- Options are attractive to retail investors because of low capital requirement and high leverage.
- Risks: high probability of retail investor losses due to complexity.
India’s Stock Market Boom
- India’s National Stock Exchange (NSE) and Bombay Stock Exchange (BSE) have grown rapidly.
- In Jan 2024, India overtook Hong Kong in stock market capitalization.
- India is now 5th largest stock exchange globally.
Regulatory Safeguards – Role of SEBI
What is SEBI?
- Securities and Exchange Board of India (SEBI) was established on April 12, 1992.
- Objective: Protect investors and regulate securities markets.
Structure of SEBI
- Chairman + Whole-time members + Part-time members.
- Assisted by committees and Securities Appellate Tribunal (SAT).
- Appeals against SAT decisions go to the Supreme Court.
Powers and Functions of SEBI
- Quasi-legislative: Drafts regulations.
- Quasi-judicial: Conducts inquiries, imposes penalties.
- Quasi-executive: Regulates intermediaries.
- By Securities Laws (Amendment) Act, 2014: Can regulate money-pooling schemes worth ₹100 crore+.
Also See: Alternative Investment Funds
📑 Comparison Table: India vs Hong Kong Stock Market
| Feature | India | Hong Kong |
|---|---|---|
| Market Capitalization (Jan 2024) | USD 4.33 trillion | USD 4.29 trillion |
| Global Rank | 4th (temporarily) | 5th |
| Key Exchange | NSE, BSE | HKEX |
| Driving Factor | Domestic demand, retail participation, economic growth | Mainland China-linked listings, global financial hub |
| Regulation | SEBI | Securities and Futures Commission (SFC) |
🧠 Mnemonic to Remember SEBI’s Roles – “RIP”
- R – Regulation of securities market.
- I – Investor protection.
- P – Promotion of fair practices and development of markets.
📝 Prelims Practice Questions
Q1. Consider the following statements regarding SEBI:
- SEBI is a constitutional body established under Article 324 of the Constitution of India.
- SEBI has quasi-legislative, quasi-judicial, and quasi-executive powers.
Which of the above is/are correct?
(a) 1 only
(b) 2 only
(c) Both 1 and 2
(d) Neither 1 nor 2
Answer: (b) 2 only
Also See: Business Responsibility and Sustainability Report
Q2. With reference to global stock exchanges, arrange the following in descending order of market capitalization (2024):
- Shanghai Stock Exchange
- New York Stock Exchange
- National Stock Exchange of India
- Nasdaq
Options:
(a) 2 – 4 – 1 – 3
(b) 2 – 1 – 4 – 3
(c) 4 – 2 – 1 – 3
(d) 2 – 4 – 3 – 1
Answer: (a) 2 – 4 – 1 – 3
Also See: Key Government Directorates under Department of Revenue
❓ Frequently Asked Questions (FAQ)
Q1. What is the difference between options and stocks?
Stocks: Ownership in a company.
Options: Financial contracts that derive value from underlying stocks, used for speculation or hedging.
Q2. Why is India leading in equity option contracts?
Low transaction costs, high retail participation, and tech-driven exchanges like NSE.
Q3. How does SEBI protect small investors?
Issues warnings against risky trading strategies.
Cracks down on unregistered advisors.
Mandates disclosures by brokers and companies.
Q4. Is SEBI independent?
Yes, though it works under the administrative control of the Ministry of Finance, SEBI functions autonomously with statutory backing.
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