The market regulator will be open to taking derivative products off the shelf if the expert committee deliberating on the F&O segment recommends it, said the Sebi Chairperson. That is a regulatory risk that the market ecosystem understands, she added.
In a question posed by Moneycontrol on whether Sebi would find any move that will result in contraction in trading turnover a regressive step, the Chairperson of Sebi Madhabi Puri Buch said, "Not at all".
Earlier in the conversation, in a press conference held after the Securities and Exchange Board of India (Sebi) met with its Board, Buch had discussed the concerns the regulator had in the F&O segment and among them was the nature of trading observed in the segment.
Also read: Why is Sebi concerned about F&O trading: Madhabi Buch explains
Buch said Sebi had noticed concentration of trading in weekly options and on expiry day which was driven purely by speculation, not hedging.
"The question is what needs to be done for investor protection, particularly since we have heard of people borrowing money for this speculative activity," she said, and even cited anecdotal evidence of people losing their homes from this.
In this context, Moneycontrol asked if the regulator would be willing to shelve derivative products, if they were enabling this trading behaviour. Buch answered that there would be no hesitation in doing so, if the data and logic align with that course of action.
She said, "If that is what is required (taking out products), that is the considered view of the expert committee (which has been formed under the Secondary Market Advisory Committee) and we agree with the logic, then why not?"
On the financial implications on the stock exchanges and other capital-market related companies, she said, "Yes of course (there will be financial implications)... (but) as you know, in any business model there is regulatory risk. You ask the pharma companies and bankers what regulatory risk is, it is a reality that is part of the business and any investor must be conscious of that."
Buch added that the market ecosystem is "very mature", enough to appreciate that such risks have to be accepted.
She cited the example of a leading broker speaking about this and accepting that regulatory changes do affect their business model.
In April 2024, after the Reserve Bank of India (RBI) explicitly restricted the use of unhedged currency derivative, Zerodha's founder Nithin Kamath had tweeted about regulatory risk. He wrote: "I have said this before, regulatory risk is by far the biggest risk for stock brokers".
Also read: Sebi restricts association of registered entities with unregistered entities such as finfluencers
Buch may have alluded to this instance.
To emphasise, she added that regulatory risk is part of business not just in India but worldwide and is true for all sectors, not just for the capital market.
"Wherever there is regulation, there is regulatory risk," she said.
Discover the latest Business News, Sensex, and Nifty updates. Obtain Personal Finance insights, tax queries, and expert opinions on Moneycontrol or download the Moneycontrol App to stay updated!
