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SEBI ‘lens on retail participation in the F&O segment’

Thomas K Thomas | | Updated on: May 18, 2022

FILE PHOTO: The logo of the Securities and Exchange Board of India (SEBI) is pictured on the premises of its headquarters in Mumbai, India, March 1, 2017. REUTERS/Shailesh Andrade/File Photo | Photo Credit: SHAILESH ANDRADE

Worried about inexperienced investors burning their fingers; may regulate

Worried about the rising retail participation in the Futures and Options (F&O) segment, the Securities and Exchange Board of India has undertaken a study to gauge the extent of retail presence in this segment. The outcome of the study could lead to regulatory invention if required.

“The findings of the study will be revealed soon. SEBI is concerned about the risks associated with the F&O segment and the increasing number of retail investors coming into this segment,” said a source close to the development. “Based on the findings of the study, the market regulator will think about taking suitable measures.”

The F&O segment is riskier than investing in stocks. Typically, high networth individuals, traders and speculators participate in this segment.

More riskier

But the rising overall retail participation in the equity markets has got the regulator worried as F&O trades put unaware investors at greater financial risk besides making the market speculative. Futures are derivative contracts that require the buying/selling parties to transact security at a predetermined future price and date.

According to market-watchers, the recent heightened volatility is attracting investors wanting to take advantage of the sharp swings in the bourses. But large swings in the wrong direction can quickly erode capital, especially for inexperienced investors.

India’s stock market has a large presence of individual investors. NSE data show that nearly 90 lakh new investors have come on to the trading platform in FY2021. BSE added over 1.8 crore new investors between May 2020 till recently. Data also show that millennials form a significant number of the new investors. The NSE data also show that more than half of new traders came from outside India’s top 50 most populated cities. This set, it is feared, may not be aware of the risks associated with the F&O segment.

“The survey will give real data to SEBI on the extent of retail participation in the F&O segment. The data will be useful to come up with suitable regulations to protect investors,” said a source.

Published on May 18, 2022
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