📘 IAS Prelims 2025 — GS-I Q.8 | Classroom Explanation

📌 Question

Q.8) Consider the following statements:

Statement I: India accounts for a very large portion of all equity option contracts traded globally thus exhibiting a great boom.
Statement II: India’s stock market has grown rapidly in the recent past even overtaking Hong Kong’s at some point of time.
Statement 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

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✅ Correct Answer: (a)

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🧑‍🏫 Classroom Explanation

This question blends financial markets, derivatives trading, and regulatory awareness, all inspired directly from recent news reports and SEBI advisories.

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🔍 Statement-wise Analysis

✅ Statement I: Correct

• India has witnessed an unprecedented boom in equity options trading.

• As per global derivatives data (2023–24):

• Over 80% of global equity option contracts were traded on Indian exchanges.
• India overtook traditional derivatives hubs like the US and Europe.

• This reflects:

• High retail participation
• Easy digital access
• Low contract sizes

➡️ Hence, Statement I is correct.

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✅ Statement II: Correct

• India’s equity markets have expanded rapidly in terms of:

• Market capitalization
• Trading volumes
• Number of listed companies

• In early 2024:

• Indian stock market capitalization briefly surpassed Hong Kong
• India became the 4th largest equity market globally

➡️ Hence, Statement II is correct.

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❌ Statement III: Incorrect

• India does have a dedicated regulatory authority:

👉 Securities and Exchange Board of India (SEBI)

• SEBI actively:

• Warns retail investors about risks of derivatives trading
• Acts against unregistered investment advisors
• Issues circulars on speculative excesses
• Tightens margin and lot-size norms

• Recent SEBI actions include:

• Public risk disclosures on options trading
• Crackdown on finfluencers and fake advisors

➡️ Hence, Statement III is not correct.

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🧮 Elimination Logic (Exam Hall Trick)

• Statement III uses absolute wording: “There is no regulatory body”
➡️ Such blanket negatives are often red flags in UPSC questions.

• Presence of SEBI automatically eliminates options containing III.

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🎯 Final Evaluation

✔️ Statement I: Correct
✔️ Statement II: Correct
❌ Statement III: Incorrect

➡️ Correct answer: (a) I and II only

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🔗 Bridge Points (High Shelf-Life)

• Expect future questions on:

• Risks of derivatives & options trading
• Retail participation vs institutional dominance
• SEBI regulations on finfluencers & digital platforms
• Market bubbles and speculative excess

• Linked areas:

• Investor protection
• Financial literacy
• Capital market stability

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📍 GS Mapping

• GS Paper II
• Subject: Indian Economy / Financial Markets
• Theme: Equity markets, derivatives, regulation
• Question Nature: Current affairs + static concepts

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