UPSC Prelims 2025 Q8: Indian Economy – Financial Markets & Capital Markets
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: (a) I and II only
Explanation
Statement-by-Statement Breakdown:
| Statement | Claim | Verdict |
|---|---|---|
| Statement I | India accounts for a large portion of global equity options contracts | TRUE - NSE is one of the world's largest derivatives exchanges by volume |
| Statement II | India's stock market has grown rapidly, surpassing Hong Kong in some metrics | TRUE - NSE has exceeded Hong Kong in trading volumes in recent periods |
| Statement III | There is no regulatory body monitoring risks in options trading in India | FALSE - SEBI actively regulates, issues warnings, and takes enforcement action |
SEBI's role: Issues circulars on derivatives risk, regulates financial advisors, penalises unauthorised dealers, and protects retail investors — comprehensive investor protection framework.
Answer: (a) I and II only.
Why each option is right or wrong
- (a) CORRECT. India has a massive options market (I) and rapid stock market growth beating HK (II) — both TRUE. But SEBI actively regulates options trading — Statement III is FALSE.
- (b) Incorrect. Statement I is also correct. India's options volume on NSE is among the highest globally.
- (c) Incorrect. Statement II is also correct — NSE has surpassed Hong Kong in certain trading metrics.
- (d) Incorrect. All three cannot be correct — Statement III is definitively wrong. SEBI is a comprehensive regulator with strict investor protection measures.
Key point
India = world's largest equity options market by contracts (NSE). Rapid growth, surpassed Hong Kong. BUT SEBI actively regulates — no regulatory vacuum.
Remember
India has the world's largest equity options market by number of contracts traded.
Common mistakes
- Not knowing India dominates global equity options trading by volume. This is counterintuitive for many students who assume USA or Europe leads.
- Assuming that a large, fast-growing market means regulatory absence. SEBI has one of the most active derivatives regulation frameworks globally.
- Confusing equity options dominance (India = #1 globally) with equity market cap dominance (India is large but not #1).
Exam tip
For Indian financial market questions: SEBI is ALWAYS the regulator. If any option says "no regulatory body" or "no warnings issued," eliminate it immediately. SEBI is vigilant on retail investor protection.
Sources
- SEBI Master Circular on Stock Exchange Regulations and Options Trading
- SEBI Guidelines for Financial Advisors and Registered Investment Advisers
- World Federation of Exchanges - Global Trading Statistics
- NSE and BSE Official Data on Trading Volumes