SEBI seeks to cut retail F&O bets

SEBI seeks to cut retail F&O bets

Investors may soon have to tailor their bets in equity derivatives to their income.

The Securities and Exchange Board of India (Sebi) is planning to link the extent of investors’ exposure to futures and options to what they earn, said three people familiar with the development. The move is aimed at preventing individuals from taking unaffordable positions in risky instruments but market participants fret about the impact of such a move on derivatives volumes.

The capital market regulator wants to introduce the concept of product suitability for investors in India as prevalent in other developed markets, said one of the three people cited above.


Any product sold to an investor should be suitable to him,” said one of them. “If it is not suitable, why should an investor invest in it?” Derivatives, once described as weapons of mass destruction by investor Warren Buffett, are considered a risky investment by some.

Sebi has come across several instances of investors taking on exposure to derivatives in excess of their declared income or share portfolios. Investors can bet on Nifty or stock futures by making an initial deposit that’s a fraction of the value. Gains can be steep but so can losses if bets go wrong. In theory, losses for futures traders and options sellers are unlimited.

Sebi is targeting manipulators, not investors,” said one of the persons, who was part of the deliberations. Proprietary trades and individual investors contribute 43% and 26%, respectively, to the total volume of the equity derivatives trade in India. Options dominate trading in the derivatives segment, accounting for 83.61% of the total.

The Economic Times, New Delhi, 12th March 2018

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