SEBI Reviewing Equity Derivatives Rules; Wants To Deter Retail Investors In F&O

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The capital market regulator is all set to revise the norms for equity derivatives segment. The Securities and Exchange Board of India will soon finalize the details on revising the rules and regulations for the equity derivatives, the futures and options (F&O) segment. Some other proposals will also be passed, as the legal news in India says. For example, Sebi may suggest the lot size to be made double for a contract from Rs 5 lakh to Rs 10 lakh for the time being. This move is directed at deterring the retail investors to invest in F&O. A double lot size would mean a bigger amount of money to be deposited with the broker. Though this may not affect the high net worth investors but this would definitely make F&O trading costlier for retail investors. In the past as well, the regulator had increased the lot size from Rs 2 lakh to Rs 5 lakh in the year 2015.

The regulator is trying to make the futures and options unattractive for the retail investors because they indulge in speculative bets by investing in F&O and hardly understand the risks factors that are associated with it. The board states that as per their survey, the retail investors were found absolutely unaware of the risk factors associated with the derivatives market to an extent that some of the investors believe that derivatives are actually safer than the bonds.

However, the story does not end here. The bigger picture is, the regulator wishes to discourage the retail investors in investing in future and option chain because the board wants the retail investors to invest in the shares.

The board has gone one step ahead and has been trying to launch various products that suit the investors wherein they can invest with more confidence and the products are lucrative for them. The chairman of Sebi, Mr. Ajay Tyagi had said in a recent meeting that the regulator wishes to revise the derivatives market framework and bring more suitable products for the investors that involve global best practices.

The commodity and capital market regulator is deliberating on the minimum net worth limit for traders who wish to trade in equity derivatives. As of now, F&O traders are expected to provide six months of bank statement or ITR as a proof of their financial condition.

The board may also take into account the opinions on Securities Transaction Tax (STT) on options trades. After which, Sebi will make recommendations to the Finance Ministry since STT falls in their purview.

Also, the board will invite recommendations on the matter of deliveries in options trades. Currently, all the options trades are dealt in cash which also means that buyers of call and put options do not have a say in making deliveries of the underlying shares if the price moves against them. If they had a choice of not making the deal in cash, they would have saved themselves from the manipulations by operators.

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