SEBI to Enhance Investor Protection in F&O Segment, Seeks Tax Breaks for Municipal Bonds

SEBI plans to introduce measures to enhance investor protection in the Futures and Options (F&O) segment. The regulator also seeks tax breaks for subscribers of municipal bonds to support infrastructure funding. SEBI proposes revising the minimum contract size for index derivatives, aiming to improve risk management and transparency.

Capital markets regulator SEBI is poised to take imminent measures regarding the Futures and Options (F&O) segment to bolster investor protection, a senior official revealed on Tuesday.

Furthermore, SEBI has advocated for the government to grant tax breaks for municipal bond subscribers, which are essential for infrastructure development funding.

During an upcoming meeting with the finance commission, SEBI's whole-time member Ashwani Bhatia will argue the case for these tax breaks for municipal bonds.

Since 1997, municipalities have mobilized Rs 2,700 crore through bonds for infrastructure initiatives.

Discussing the F&O segment, Bhatia noted, "SEBI is very soon going to take action on F&O. A study has recently been conducted."

In its latest consultation paper, the regulator proposed seven measures to tighten index derivatives rules. These include revising the minimum contract size, requiring upfront collection of option premiums, intra-day monitoring of position limits, rationalizing strike prices, removing calendar spread benefits on expiry day, and increasing near-contract expiry margins.

If implemented, these measures aim to enhance risk management and transparency in the derivatives market.

According to the consultation paper, the minimum contract size for index derivatives will be revised in two phases, considering market growth.

Phase 1 sets the initial minimum contract value between Rs 15 lakh and Rs 20 lakh. After six months in Phase 2, this will increase to between Rs 20 lakh and Rs 30 lakh.

The current minimum contract size range of Rs 5 lakh to Rs 10 lakh was last revised in 2015.

A recent SEBI study revealed that 93% of over 1 crore individual F&O traders incurred average losses of Rs 2 lakh per trader, including transaction costs, over three years from FY22 to FY24. Aggregate losses exceeded Rs 1.8 lakh crore in that period.

The report underscores a rise in loss-making individual investors in F&O, from 89% in FY22 to the current statistics.

(With inputs from agencies.)