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Sebi on retail participation in derivatives market.

Sebi on retail participation in derivatives market.

Retail Participation In Derivative Markets: The Sebi clarification comes after reports said Sebi was likely to propose linking the amount of equity derivatives they may trade to their wealth

Derivatives Market, Futures & Options Trading: Capital markets regulator Sebi on Saturday, July 29, clarified that there is no proposal to curb retail participation in derivative markets, or futures and options (F&O) trading. The clarification comes after media reports said that Sebi was likely to propose linking the amount of equity derivatives they may trade to their wealth.

“No proposal to curb retail participation in derivative markets,” said Sebi on Saturday said in a statement while mentioning that this is with reference to some media articles speculating that Sebi is seeking to curb retail participation in derivative markets.

Currently, for trading in the derivative segment, Sebi’s circular dated December 3, 2009, (which has now been incorporated under Master Circular for Stock Brokers dated May 17, 2023), inter alia, prescribes that the stock broker shall have documentary evidence of financial capability for all clients, the regulator said in the statement.

The regulator said that in line with the objective of ease of doing business, it “is at an early stage of evaluating if the aforesaid circular can be made applicable based on risk assessment of the clients. This would promote ease of compliance for brokers and investors”.

Sebi’s focus has always been on adequate risk management, while ensuring ease of doing business and compliance, rather than on placing any curbs on trading, the regulator stated.

“It is reiterated that proposals which result in any change in the regulatory framework, go through a process of comprehensive consultation with all stakeholders including the public, before any decision is taken by the Board,” Sebi said.

Retail investor participation in the equity derivatices market surged 300 per cent in the past three years till March. Recently, there were cases of significant losses by retail investors in the futures and options trading. A case was also viral on social media recently where a person having a yearly income of Rs 10 lakh reported F&O losses of Rs 12 lakh.

What Is Derivatives Market, Futures & Options Trading?

The derivatives market include futures and options trading. The trades are taken place based on the fluctuations in the prices of shares and commodities.

“Derivatives are considered a form of advanced investing. The most common underlying assets for derivatives are stocks, bonds, commodities, currencies, interest rates, and market indexes. Contract values depend on changes in the prices of the underlying asset,” according to Investopedia.

According to online investment platform Groww, 9 out of 10 individual traders in equity futures and options segment incurred net losses. On an average, loss makers registered net trading loss close to Rs 50,000.

“Over and above the net trading losses incurred, loss makers expended an additional 28 per cent of net trading losses as transaction costs,” it said in a disclaimer for F&O trading. It is a mandatory step by Sebi.

It also said those making net trading profits, incurred between 15 per cent and 50 per cent of such profits as transaction cost.


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