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Sebi to link retail investors’ derivative play with income

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Trading turnover in derivative products has seen a sharp surge of 10-fold over the past decade, during which the ratio of trades in equity derivatives to that of equity cash market has risen to 15-times.

New Delhi : Markets regulator Sebi is considering linking retail investors’ exposure to derivatives with their income, a move aimed at preventing them from taking unreasonable positions in risky instruments.

The issue is expected to be discussed at the board meeting of the Securities and Exchange Board of India (Sebi) this month, officials said.


According to Sebi, trading turnover in these products has seen a sharp surge of over 10-fold over the past decade, during which the ratio of trades in equity derivatives to that of equity cash market has risen to over 15-times. While a large number of individual investors are active in the derivatives segment, it has been observed that a number of them may not have an adequate financial capability to withstand risks posed by complex derivative instruments, Sebi said.

As per the proposal being considered, the total annual income can be made deciding factor for the exposure a retail investor can take into futures and options, the officials said.

Besides, Sebi plans to address with the new norms any inefficiencies present in the market and any regulatory arbitrage that needs to be plugged.

The markets watchdog in July last year had proposed to overhaul its rules for derivatives trading through a public consultation, including on suitability of these ‘more complex and risky’ products for individual investors.

“In the absence of a product suitability framework, this may not be in the interest of securities market,” the regulator had said while inviting public comments by August 10, 2017 on whether there was a need to introduce such a framework.

The comments had been sought on all issues related to trading in derivatives, participants’ profile, product mix and stock eligibility to further strengthen the framework in line with the emerging trends and global best practice.