Finance Minister Nirmala Sitharaman on Tuesday red flagged the growing retail participation in the derivatives market.

“Any unchecked explosion in retail trading in the futures and options market can create future challenges for the market, investor sentiment, and household finances,” Sitharaman said at an event held at BSE in Mumbai, laying out the vision for the Indian financial market.

Several options traders were caught off guard by freak movements in the underlying indices last month across exchanges, resulting in losses worth hundreds of crores. BSE said last week it was taking steps to mitigate sudden spikes in options prices and had ramped up surveillance measures.

Sitharaman appealed to BSE to work closely with SEBI in order to ensure stringent compliance and robust regulatory standards to ensure investor confidence remained intact and to play a proactive role in promoting higher standards of corporate governance among listed companies.

“Household savings have made a generational shift (from traditional instruments to equities), and we want to safeguard that,” Sithraman said. “Exchanges need to ensure market stability, mitigate systemic risks, and adopt technology in the form of blockchain, AI, and big data to improve market efficiency.”

With Covid-19 and online KYC acting as triggers, families were allocating a portion of their savings to equities as opposed to just post office savings, fixed deposits, or chit funds.

This had resulted in a surge in demat accounts to over 15 crore. Mutual fund assets had grown 576 per cent to ₹54.1-lakh crore in the last decade. Average monthly SIP contributions had grown 4.5 times in the last 7 years to ₹16,600 crore. 580 companies had raised more than ₹3-lakh crore through IPOs.

“Investors are better informed and more trusting of stock markets. Retail money has become a counter-balancing force to FPI flows,” said Sitharaman, adding that the move to a shorter T+1 and same-day settlement cycle had increased confidence in the Indian equity market.

The minister said that a number of sovereign funds had lined up to invest in REITs and InvITs, and India’s inclusion in the JP Morgan bond index from next month may bring in at least $20 billion into the country.