Sebi's Bold Moves to Rein in Derivative Trading

Capital markets regulator Sebi has received feedback from around 6,000 stakeholders on proposed regulations in F&O trading. Measures include increasing contract sizes, monitoring limits, and the use of AI to enhance market stability. The government has raised the securities transaction tax to curb speculative trading.

Capital markets regulator Sebi has received feedback from approximately 6,000 stakeholders concerning its consultation paper on Futures & Options (F&O) trading, as disclosed by its chief Madhabi Puri Buch on Thursday.

In a consultation paper released in July, Sebi proposed seven regulatory measures: increasing minimum contract size, enforcing upfront collection of option premiums, monitoring day-to-day position limits, rationalising strike prices, removing calendar spread benefits on expiry day, and increasing near-expiry margin requirements.

These recommendations aim to enhance investor protection and market stability in derivative trading. Addressing attendees at the Global Fintech Fest 2024, Buch emphasized the substantial feedback received and highlighted the role of technology in processing these responses swiftly. Additionally, Sebi is developing several AI-powered technologies to improve market surveillance and processing efficiency.

Earlier this month, Sebi Whole-Time Member Ananth Narayan G clarified that the primary goal behind restricting derivative trades is to curb the 'expiry day frenzy,' not to ban derivatives altogether. This follows previous statements from Sebi regarding significant household financial losses in the F&O segment. Research revealed that retail traders typically lose money in nine out of ten trades.

The government's Union Budget in July raised the securities transaction tax on futures and options trades starting October 1, in an effort to temper the hyperactivity in the derivative market. Further concerns were highlighted in the Economic Survey, which pointed out that rising retail investor interest in speculative trading mirrors gambling tendencies, which is problematic for a developing nation.

(With inputs from agencies.)