Sebi-appointed expert group discusses 7 proposals to regulate F&O segment

Kolkata, July 7: The Sebiappointed expert group on exchange-traded derivatives started discussions on seven proposals to address regulatory issues and protect small investors from risks in index and stock option trading, sources said.

The panel members would recommend shortterm strategies to bolster investor protection and improve risk metrics in this market segment, they said. “The expert group would deliberate in detail the pros and cons of each of the seven proposals to protect small investors engaged in futures and options (F&O) trading. We know that nine out of ten small investors lose money in F&O. The recommendations of this group will be considered by the secondary market advisory Committee for a final decision,” a source close to the development said.

Options are financial contracts that give a holder a right, but not the obligation, to buy or sell an underlying asset at a specified price within a contract period.

The proposals included rationalisation or limiting weekly options, rationalisation of strike prices of the underlying assets and removal of calendar spread benefits on the expiry day, according to the sources.

The other four proposals were an upfront collection of option premiums from buyers of options, intraday monitoring of position limits, an increase in lot sizes and a hike in margin requirements near contract expiry.

Both the Securities and Exchange Board of India (Sebi) and the Reserve Bank have expressed concern over the risks associated with retail investors, amid market volatility.

Sebi chairperson Madhabi Puri Buch recently said the regulator has anecdotal evidence of people borrowing money to place speculative bets in the derivatives segment and rued that household savings are going into such risky bets.