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The Securities and Exchange Board of India (SEBI) has announced a series of measures aimed at curbing speculative trading by retail investors in the futures and options (F&O) segment. These changes, which are expected to be implemented in phases starting November 20, are intended to bring greater stability to the market and protect individual traders from excessive risk-taking.
The most significant impacts on market volumes are anticipated from the limitation of weekly expiries to one per exchange and the increase in the contract size to Rs 15 lakh from the previous Rs 5-10 lakh. These measures are intended to discourage high-frequency trading and reduce the leverage available to retail participants. Brokers, who rely heavily on F&O trading volumes for their revenue, are expected to experience a decline in transaction fees.
Analysts have estimated that brokers could see a drop of at least 20% in both their top-line and bottom-line figures as a result of the new regulations. This could lead to a reduction in brokerage services or even job losses within the industry. However, SEBI maintains that these changes are necessary to protect the interests of retail investors, who often lose substantial amounts of money in F&O trading due to their lack of experience and understanding of complex derivatives strategies.
A recent SEBI study found that individual traders in India experienced net losses of Rs 1.81 lakh crore in F&O trading from April 2021 to March 2024, with only 7.2% of traders managing to make a profit. The study highlighted the high levels of risk associated with derivatives trading and the need for greater regulation to protect vulnerable participants. While some market participants argue that the new guidelines could stifle innovation and reduce market dynamism, SEBI believes that these measures are essential to foster a more stable and responsible trading environment.
The new regulations aim to reduce the leverage available to retail traders, limit the potential for excessive losses, and encourage a more disciplined approach to derivatives trading. It remains to be seen whether these changes will achieve their intended objectives. However, it is clear that SEBI is determined to address the issue of retail investor losses in the F&O segment, and its efforts are likely to have a significant impact on the Indian market in the years to come.
Source: F&O curbs: How SEBI moves may impact stock market, retail investors & brokers