By Ashley Coutinho
The Securities and Exchange Board of India (Sebi) is deliberating on methods to dissuade retail buyers from recklessly punting within the fairness derivatives section.
The regulator could mandate threat profiling and earnings disclosures of buyers, amongst different issues, to curb extreme buying and selling and hypothesis, in line with folks within the know.
“The regulator is concerned about investors losing money in the F&O segment and is looking at ways by which it can educate investors and discourage them from taking undue risks,” mentioned an individual acquainted with the matter, including that a couple of fifth of retail buyers buying and selling in futures and choices, or F&O, could possibly be millennials and one other fifth could possibly be senior residents.
In June, Sebi had reached out to the nation’s high brokers, asking them to furnish particulars of F&O shoppers, together with age, earnings vary, metropolis and the earnings constituted of buying and selling within the section within the 12 months earlier than and after the pandemic.
A number of months again, the NSE, which enjoys a monopoly within the F&O section, had reached out to a lot of intermediaries for solutions on curbing speculative F&O bets from retail buyers.
On Monday, the NSE put out an commercial in a number one enterprise day by day warning buyers to concentrate on the dangers concerned whereas buying and selling in choices. “Retail investors should trade in derivatives, especially options, only if they have high-risk tolerance and have relevant trading experience. Be aware of the risk of losing substantial amounts by options sellers if the underlying price movement is not in the anticipated direction and the risk of losing the entire amount paid by options holder in a relatively short period of time. Moreover, writing options to recover losses made in the markets is an extremely risky trading strategy,” the commercial mentioned.
It is just not clear if Sebi will take steps to ban sure kinds of riskier F&O methods or mandate a stricter threat profiling of shoppers from brokers. An electronic mail despatched to the Sebi and NSE didn’t get a response.
“Brokers are allowing practically everyone to trade in derivatives, even those with less than Rs 50,000 in their bank account. There has to be some checks and balances in place,” mentioned a dealer, on situation of anonymity.
Trading within the choices section of the exchanges has touched a report excessive previously 12 months amid an uptick in margins within the futures section, elevated exercise from algo merchants, a weekly expiry cycle and the entry of recent merchants within the aftermath of the Covid-19 pandemic.
Small merchants are betting as little as Rs 15,000-20,000 within the choices section, most of which is speculative and guess on the route the Nifty will transfer in a selected week. More than 90% of the retail or small merchants are shedding cash this manner, which doesn’t bode properly for the long-term fairness tradition within the nation, mentioned specialists.
“No brokers would want his clients to make loss-making trades. But very often the risk profile of a trade doesn’t match the risk profile of the client. And that is the nub of the problem,” mentioned Siddarth Bhamre, head of analysis at Religare Broking.
According to him, it could be a mistake to actively stop buyers from buying and selling within the section. “F&O trading is a zero-sum game. You can’t step in and say that retail investors cannot make losses or that they can stick to only certain types of strategies or trades. The regulator, exchanges and intermediaries should instead focus on educating customers,” Bhamre mentioned.
Source: www.financialexpress.com”