sebi f&o news Archives

F&O Trading Impact: Households Losing Upto Rs 60,000 Crores…

31 July 2024
by admin

SEBI chairperson Madhabi Puri Buch (File Photo: Credits- X)

A Sebi study had earlier pointed to 90 per cent of the trades resulting in losses.

Sebi chairperson Madhabi Puri Buch on Tuesday said households are losing up to Rs 60,000 crore a year in the problematic futures and options segment.

Speaking at an event at the largest equity bourse NSE, Buch wondered why such bets in the derivative markets should not be called as a “macro issue”, as it had done earlier.

Also Read: Your Relationship Status Is Deciding Trading Profit; Singles, Females Pro-Traders: Sebi Study

Big Impact

“If Rs 50,000-60,000 crore a year is going away into losses in F&O whereas that would have been productively deployed as may be the next IPO round, maybe MF, to other productive purposes, why is that not a macro issue?” Buch said.

Sebi’s Concerns About the Futures and Options Segment

Sebi believes that a significant portion of the trading activity in the F&O segment is driven by speculation rather than hedging or risk management.

This can lead to increased market volatility and potential systemic risks.

Data suggests that a large number of retail investors incur losses in the F&O segment.

Sebi is worried about the negative impact of these losses on household savings and the overall financial well-being of investors.

A Sebi study had earlier pointed to 90 per cent of the trades resulting in losses. The capital markets regulator also came up with a consultation paper on Tuesday proposing ways to limit the activity.

Key proposals include; increasing minimum contract size, reducing the number of weekly options contracts, upfront collection of option premiums and limiting the number of strike prices on expiry day.

Responding to a question on the impact of such attempts to curb the fee-yielding trades, NSE’s chief executive and managing director Ashish Kumar Chauhan said it will abide by the regulations.

Buch said while there is a short-term trade-off for exchanges by way of fees impact, in the long term it will be beneficial to all the stakeholders.

She also said that exchange-traded funds cannot be an alternative or a replacement for the riskier derivatives activity for investors as the dynamics of liquidity and leverage are very different.

Meanwhile, to a question on whether a bank customer can use the same KYC (know your customer) validation for investing in mutual funds, Buch replied in the negative and referred to the banking system’s troubles with Paytm.

On fininfluencers, Buch said Sebi has identified difficulties in getting registered as an investment advisor being a detrimental factor and will soon be rationalising it.

She said that there are false claims being peddled by such platforms, and added that an entity from the NSE Group has showcased a performance validation mechanism and hinted that it will soon be implemented.

Buch said the Sebi management will also soon be taking a proposal to its board to make ASBA or application supported by blocked amount mandatory and added that to begin with, it can start with at least the qualified brokers.

There is a “misunderstanding” in the market about the investors not paying the broker to carry out transactions, she said, adding that brokers are getting Rs 2,800 crore from trades that will now get reclassified as broker fees instead of exchange fees.

(With PTI inputs)

Namit Singh Sengar

Namit writes on personal finance, economy and brands. Currently contributing to News18.com as a Senior Sub Editor in the business vertical. Prior to t…Read More

Science & Environment

Sebi’s F&O Check: Panel Suggests Rs 20-30 Lakh Minimum…

9 July 2024
by admin

The expert group is also scrutinising the weekly options in detail as these are most attractive to retail investors who can participate with low capital.

Sebi appointed an expert working committee last month to address the issue of excessive speculation driven by high retail participation in recent years.

Sebi’s Working Committee on Futures and Options has reportedly recommended raising the minimum lot size of derivative contracts from the current Rs 5 lakh to Rs 20 lakh-Rs 30 lakh. Additionally, they suggest limiting weekly options to a single expiry per stock exchange each week.

According to a report by Moneycontrol, the panel recommended one key measure to curb the unbridled rise in derivatives volume is to limit the number of strike prices for options contracts.

Sebi, the Securities and Exchange Board of India, appointed an expert working committee last month to address the issue of excessive speculation driven by high retail participation in recent years.

The Sebi-appointed expert group on exchange-traded derivatives has started discussions on seven proposals to address regulatory issues and protect small investors from risks in index and stock option trading.

Sebi is keeping a close eye on F&O trading due to a recent surge in retail investor participation and the potential risks involved.

“The expert group would deliberate in detail the pros and cons of each of the seven proposals to protect small investors engaged in futures and options (F&O) trading. We know that nine out of ten small investors lose money in F&O. The recommendations of this group will be considered by the Secondary Market Advisory Committee for a final decision,” a source close to the development told PTI.

Options are financial contracts that give a holder a right, but not the obligation, to buy or sell an underlying asset at a specified price within a contract period.

The panel members would recommend short-term strategies to bolster investor protection and improve risk metrics in this market segment.

The proposals included rationalisation or limiting weekly options, rationalisation of strike prices of the underlying assets and removal of calendar spread benefits on the expiry day, according to the sources.

The other four proposals were an upfront collection of option premiums from buyers of options, intra-day monitoring of position limits, an increase in lot sizes and a hike in margin requirements near contract expiry.

Both the Sebi and the Reserve Bank have expressed concern over the risks associated with retail investors, amid market volatility.

Sebi chairperson Madhabi Puri Buch recently said the capital markets regulator has anecdotal evidence of people borrowing money to place speculative bets in the derivatives segment and ruled that household savings are going into such risky bets.

The rapid rise in F&O trade volumes in recent years could pose several challenges as retail investors who are not following proper risk management could be impacted by sudden market movements, a Reserve Bank report stated.