#31 Newsletter

Market Watch

Talks with Daulat

Injections

SEBI to introduce new rules to protect F&O investors.

SEBI is considering new rules to limit the amount of equity derivatives that retail investors can trade. The regulator is concerned that smaller investors could suffer losses if markets turn volatile.

The derivative market has seen a surge in investor interest, with account openings increasing by 500% in the past three years. Most of the new investors are in their 30s. However, nine out of ten investors lose money, with average annual losses of INR1,10,000.

The new rules would be based on an investor's net worth and income. Brokers would be required to report this information to exchanges, which would then monitor the investor's exposure to derivatives contracts. The amount of derivatives that an investor could trade would be capped at a threshold that is a multiple of net worth.

The new rules are similar to those that have been implemented in other markets, such as South Korea. In South Korea, retail investors are required to make a minimum deposit and undergo compulsory training before they can trade in equity derivatives.

SEBI had proposed a similar framework in 2017, but it was dropped after brokers cited difficulties in assessing the net worth of their clients. The regulator revived the idea of curbs after a study showed that nine in 10 individual traders lost money in the previous fiscal year.

The new rules are still in the proposal stage, and it is not yet clear when they will be implemented. However, SEBI is concerned about the risks that retail investors face when trading in equity derivatives, and the new rules are a step towards protecting these investors.

Weekly Content Wrap

Facts of Finance