In recent times there have been growing voices over the rising retail investor participation in futures and options trading on the stock market. Finance Minister Nirmala Sitharaman even raised STT (Securities Transactions Tax) on it in the recent Budget.
On Tuesday, Madhabi Puri Buch, the chairperson of the Securities and Exchange Board of India (SEBI), reiterated her concerns that the volume surge in F&O trading was no more a micro issue, but a macro one.
"If Rs 50,000-60,000 crore is going away from household savings into losses in F&O, whereas that could have been productively deployed in, maybe the next IPO round, maybe mutual funds, maybe more productive uses for the economy... Rs 50,000-60,000 crore is pretty macro [issue] according to me," said Buch.
According to a consultation paper released by the market regulator, for the financial year 2023-24, 92.50 lakh unique individuals and proprietorship firms traded in the index derivatives segment of NSE and cumulatively incurred a trading loss of Rs 51,689 crore. This figure doesn't include transaction costs.
Of these 92.50 lakh unique investors, only 14.22 lakh investors made a net profit, it pointed out. That means 85 out of 100 made a trading loss.
Puri noted that if one allows this kind of phenomenon unabated, there is a risk that clients repeatedly losing money never come back.
"So, for long-term interest, including the commercial interest of the ecosystem, including the exchanges, it is very important that a certain amount of prudence be exercised," she told a gathering at NSE.
Puri on Tuesday released a report on Indian Capital Markets, while also launching a new dedicated website developed by NSE for passive funds.
The SEBI's consultation paper that was separately released today has proposed several changes that it feels will curb the euphoria in F&O.
The proposals include raising the minimum contract size to up to Rs 20 lakh and increasing the margin closer to the contract expiry.
As per SEBI's proposals, the minimum value of the derivatives contract at the time of introduction is to be between Rs 15 lakhs to Rs 20 lakhs (It's 5-10 lakh currently). After 6 months, the minimum value of derivatives contracts is to be between the interval of Rs 20 lakhs to Rs 30 lakhs.
The margins on expiry day and the day before expiry will be increased too as per the proposals.
So, at the start of the day before expiry, the extreme loss margin shall be increased by 3 per cent and further by 5 per cent at the start of the expiry day.
