Sebi’s measures will protect retail investors

The new rules for the derivatives market announced by the Securities and Exchange Board of India (Sebi) underscore the regulator’s discomfort with retail participation in the space. A report by the capital markets regulator earlier this year said 93% of the 10 million futures and options (F&O) traders lost a total of ₹1.8 lakh crore over the previous three financial years (FY22-24). While the phenomenal jump in retail participation in the markets over the past few years, the so-called market mania of the households, reflects a much needed widening of investment interest, there is precious little understanding of the financial markets and productive investment undergirding the frenzy. A recent instance of this, though in the initial public offering (IPO) space, was the ₹12-crore IPO of a Delhi-based bike dealership getting oversubscribed to the tune of ₹4,800 crore.

Sebi’s decision to raise the floor trading amount for derivatives (essentially a side bet on a bet) from ₹5 lakh to ₹15 lakh, making upfront collections of options premiums mandatory, and fixing an additional charge of 2% extreme loss margin for short option contracts on the date of expiry, must be seen against this backdrop. Household savings being channelled into speculative trading instead of productive investment has not only the markets regulator concerned but also the Reserve Bank of India and the Centre. The latest measures are welcome to the extent they discourage retail investors, especially those with small amounts to invest, indicating lesser appetite for risk from punting in the F&O markets. That said, efforts must be made to boost financial literacy and understanding of capital markets. A survey by the National Centre for Financial Education some years ago had found that just a little over a quarter of adults in the country were financially literate. This is a critical area that a growing economy can hardly afford to ignore.

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