SEBI Chairperson Comments on Derivatives Trading’s Larger Economic Impact

Madhabi Puri Buch, the chairperson of the Securities and Exchange Board of India (SEBI), expressed concern about the increasing volumes in the F&O market, highlighting its potential macroeconomic impact rather than its effect on individual investors. This is not a random comment from the Madhabi Puri Buch. In the recent time futures and options (F&O) segment, the daily turnover crossed more than a 400 Trillion mark, which is why she is concerned. According to the chairperson, many individuals are entering trading and losing a lot of money recently. This not only affects the individual trader but also has macro-level implications for the economy.Buch’s concern is arising as individuals are speculating in F&O for higher profits and end up losing money, including their household savings. This directly affects the economy through individual savings losses.

SBI Mutual Fund turned 10 trillion:

Madhabi Puri Buch said at a program conducted by SBI Mutual Fund on the occasion of completing Rs. 10 trillion in assets under management, she highlighted the unanticipated surge in the volumes and loss of household savings in the F&O market and it is because of lower lot size contract. A consultation paper will be issued by the market regulator SEBI to decrease the turnover in the derivatives market.

SEBI’s chairperson Buch next step:

On Monday, the SEBI Secondary Market Advisory Committee convened to discuss measures to address concerns. The committee is examining the current rules and product offerings for seven parameters, such as lot size, option expiry limits, and others. The current contract size and the multiple expiry are major concerns for SEBI. Traders are experiencing increased losses due to this issue. If this is controlled, there could be lower participation and limited trading from individuals.Regarding the proposals for the new asset class in mutual funds, Buch stated that there were participants engaging in illegal portfolio management services (PMS), and the regulator’s proposals aim to cater to the market demand for this category. More than Rs 80,000 crore worth of IPOs are getting approvals while Rs. 40,000 crore worth of IPOs have already been approved and are in the pipeline, as mentioned by Buch.

Buch said that they are also looking into the matter of the broker’s trading platform, where a glitch occurred while placing and closing orders, resulting in individuals experiencing increased losses recently.

Conclusion: SEBI is concerned about the market fallout if more individuals lose their savings in speculative F&O trading. Therefore, by controlling lot sizes and limiting expiry, it aims to maintain balance in the economy for the long run.

Disclaimer: This blog has been written exclusively for educational purposes. The securities mentioned are only examples and not recommendations. It is based on several secondary sources on the internet and is subject to changes. Please consult an expert before making related decisions.