Capital market regulator SEBI has proposed to bring strict rules to control the unbridled derivative business (F&O). It is worth noting that to make quick money through Futures and Options (F&O), small investors are investing their hard-earned money in it and are sinking it. According to SEBI, 9 out of 10 small investors are sinking their money in Futures and Options. Finance Minister Nirmala Sitharaman had also expressed concern about this. Now SEBI has taken a tough stand. To curb speculation-based trading, SEBI on Tuesday proposed to tighten the rules of index derivatives by amending the minimum contract size and providing for advance collection of option premium.
Concerns were also raised in the economic review
SEBI’s proposal comes a few days after the Union Budget announced an increase in the Securities Transaction Tax (STT) on futures and options (F&O) deals from October 1 to address concerns arising from excessive interest of retail traders in the derivatives segment. Earlier, the Economic Review Report 2023-24 also expressed concern over the growing interest of retail investors in the derivatives segment. According to the review, there is no place for speculative trading in a developing country.
SEBI sought suggestions on these changes
The Securities and Exchange Board of India (SEBI) in its consultation paper has proposed measures such as rationalizing weekly index products, monitoring the trading range during day trading, rationalizing prices, removing calendar spread benefits on the settlement day of F&O deals and increasing the near contract expiry margin. SEBI has invited public comments on these proposals by August 20.
Preparation for change in two phases
The market regulator said that the minimum contract size for index derivative contracts should be revised in two phases in view of the increase seen in broader market parameters. Under the first phase, the minimum value of a derivative contract should initially be between Rs 15 lakh and Rs 20 lakh. According to Sebi, after six months, under the second phase, the minimum value of the contract should be kept between Rs 20 lakh and Rs 30 lakh.
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