Indian Households Lose Rs 60,000 Crore Annually in Derivative Trading, SEBI Chief Warns
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Households losing Rs 60,000 cr a year on derivative bets: Buch
A Sebi study had earlier pointed to 90 per cent of the trades resulting in losses. The capital markets regulator also came up with a consultation paper on Tuesday proposing ways to limit the activity.Sebi chairperson Madhabi Puri Buch on Tuesday said households are losing up to Rs 60,000 crore a year in the problematic futures and options segment. Speaking at an event at the largest equity bourse NSE, Buch wondered why such bets in the derivative markets should not be called as a "macro issue", as it had done earlier. "If Rs 50,000-60,000 crore a year is going away into losses in F&O whereas that would have been productively deployed as may be the next IPO round, maybe MF, to other productive purposes, why is that not a macro issue?" Buch said. A Sebi study had earlier pointed to 90 per cent of the trades resulting in losses. The capital markets regulator also came up with a consultation paper on Tuesday proposing ways to limit the activity. Responding to a question on the impact of such attempts to curb the fee-yielding trades, NSE's chief executive and managing director Ashish Kumar Chauhan said it will abide by the regulations. Buch said while there is a short-term trade-off for exchanges by way of fees impact, in the long term it will be beneficial to all the stakeholders. She also said that exchange-traded funds cannot be an alternative or a replacement for the riskier derivatives activity for investors as the dynamics of liquidity and leverage are very different. Meanwhile, to a question on whether a bank customer can use the same KYC (know your customer) validation for investing in mutual funds, Buch replied in the negative and referred to the banking system's troubles with Paytm. "'We will not allow for a Paytm-type contamination in our market. We all saw what happened in Paytm. Because in the banking system, there is no KRA type system, the problem of Paytm stays in Paytm. It does not spread to other banks. But if we allow Paytm to come into our system, and no KRA, then it contaminates the whole system," she said. "We will always have our KRA sitting in the middle to see that things are validated. Otherwise, you will have any mischievous player coming and contaminating the whole system," she added. On fininfluencers, Buch said Sebi has identified difficulties in getting registered as an investment advisor being a detrimental factor and will soon be rationalising it. She said that there are false claims being peddled by such platforms, and added that an entity from the NSE Group has showcased a performance validation mechanism and hinted that it will soon be implemented. Buch said the Sebi management will also soon be taking a proposal to its board to make ASBA or application supported by blocked amount mandatory and added that to begin with, it can start with at least the qualified brokers. There is a "misunderstanding" in the market about the investors not paying the broker to carry out transactions, she said, adding that brokers are getting Rs 2,800 crore from trades will now get reclassified as broker fees instead of exchange fees. The Sebi chairperson also went public with her "frustration" at the mutual fund industry for not coming up with suggestions for making it easier for the diaspora to invest in schemes. Buch also pitched for the need to have broader, principle-based regulations on artificial intelligence and hinted that the regulator will look at it. Replying to a question, Buch also said that it is wrong to equate stock exchanges with crypto exchanges, and gave a stern statement on the same drawing from the ongoing Wazirx challenges. "USD 250 million cannot vanish (in the exchanges) and be called as an Act of God," she said.
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Households losing Rs 60,000 cr a year on derivative bets: Buch
A Sebi study had earlier pointed to 90 per cent of the trades resulting in losses. The capital markets regulator also came up with a consultation paper on Tuesday proposing ways to limit the activity. Responding to a question on the impact of such attempts to curb the fee-yielding trades, NSE's chief executive and managing director Ashish Kumar Chauhan said it will abide by the regulations. Buch said while there is a short-term trade-off for exchanges by way of fees impact, in the long term it will be beneficial to all the stakeholders. She also said that exchange-traded funds cannot be an alternative or a replacement for the riskier derivatives activity for investors as the dynamics of liquidity and leverage are very different. Meanwhile, to a question on whether a bank customer can use the same KYC (know your customer) validation for investing in mutual funds, Buch replied in the negative and referred to the banking system's troubles with Paytm. "'We will not allow for a Paytm-type contamination in our market. We all saw what happened in Paytm. Because in the banking system, there is no KRA type system, the problem of Paytm stays in Paytm. It does not spread to other banks. But if we allow Paytm to come into our system, and no KRA, then it contaminates the whole system," she said. "We will always have our KRA sitting in the middle to see that things are validated. Otherwise, you will have any mischievous player coming and contaminating the whole system," she added. On fininfluencers, Buch said Sebi has identified difficulties in getting registered as an investment advisor being a detrimental factor and will soon be rationalising it. She said that there are false claims being peddled by such platforms, and added that an entity from the NSE Group has showcased a performance validation mechanism and hinted that it will soon be implemented. Buch said the Sebi management will also soon be taking a proposal to its board to make ASBA or application supported by blocked amount mandatory and added that to begin with, it can start with at least the qualified brokers. There is a "misunderstanding" in the market about the investors not paying the broker to carry out transactions, she said, adding that brokers are getting Rs 2,800 crore from trades will now get reclassified as broker fees instead of exchange fees. The Sebi chairperson also went public with her "frustration" at the mutual fund industry for not coming up with suggestions for making it easier for the diaspora to invest in schemes. Buch also pitched for the need to have broader, principle-based regulations on artificial intelligence and hinted that the regulator will look at it. Replying to a question, Buch also said that it is wrong to equate stock exchanges with crypto exchanges, and gave a stern statement on the same drawing from the ongoing Wazirx challenges. "USD 250 million cannot vanish (in the exchanges) and be called as an Act of God," she said. PTI AA MR
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SEBI Chairperson Madhabi Puri Buch reveals alarming losses in retail derivative trading, urging caution and emphasizing the need for investor education.
SEBI Chief Sounds Alarm on Derivative Trading Losses
In a startling revelation, Securities and Exchange Board of India (SEBI) Chairperson Madhabi Puri Buch has disclosed that Indian households are losing a staggering Rs 60,000 crore annually through derivative trading. This announcement has sent shockwaves through the financial community and raised serious concerns about retail investors' participation in complex financial instruments
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.Understanding the Scale of Losses
The magnitude of these losses is particularly alarming when compared to other financial metrics. Buch pointed out that the amount lost in derivative trading is equivalent to 70% of the total mutual fund inflows from retail investors in equity schemes. This comparison underscores the significant impact these losses are having on household savings and investment portfolios
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.SEBI's Stance and Regulatory Approach
While acknowledging the freedom of investors to make their own choices, SEBI has expressed deep concern over these substantial losses. The regulatory body is now contemplating measures to address this issue without resorting to an outright ban on retail participation in derivatives. Buch emphasized the need for a balanced approach, stating, "How do we deal with this issue in a manner which is not a nanny state?"
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.Investor Education and Awareness
SEBI is placing a strong emphasis on investor education as a key strategy to combat these losses. The regulator believes that informed investors are better equipped to understand the risks associated with derivative trading. Buch stressed the importance of making investors aware of the potential downsides, stating, "If you know that 90 per cent of retail investors lose money in derivatives, hopefully, you will be more careful"
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.Related Stories
Market Dynamics and Retail Participation
The surge in retail participation in the derivatives market has been a notable trend in recent years. This increase has been attributed to various factors, including the ease of online trading platforms and the allure of quick profits. However, the complexity of derivative instruments often leads to significant risks for inexperienced investors
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.Future Regulatory Considerations
As SEBI grapples with this issue, there are indications that new regulatory measures may be on the horizon. While the specifics remain unclear, the regulator is likely to focus on enhancing transparency, improving risk disclosure, and potentially introducing stricter eligibility criteria for retail investors engaging in derivative trading
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