India's F&O volume leadership a 'crown we should not wear', says Sebi's Ashwani Bhatia

While it is encouraging to see growth in retail participants, the increased retail participation in derivatives and other risky products is a concern for market regulator Sebi's whole-time director Ashwani Bhatia has said.

The rising retail participation in derivatives and other risky products is a 'concern' for capital market regulator Sebi, and India's position as the largest share in F&O volumes in a 'crown we should not wish to wear,' Ashwani Bhatia, Whole-Time Member, SEBI said on October 22, at Morningstar's investor conference in Mumbai.

F&O Should Not be a 'National Pass Time'

"F&O cannot be and should not be a national Pass Time, which actually means that savings of retail participants moves into the pockets of institutional banks." Sebi's Ashwani Bhatia cautioned against casually trading in derivatives segment, saying the data tells otherwise. "Over three years, there have been losses for 93% of the investors. 1% make 99% so your odds are terrible."

A Crown of Thorns

Justifying the regulator's caution, Ashwani Bhatia said, "While it is encouraging to see growth in retail participants, increased retail participation in derivatives and other risky products is a concern. This signifies confidence, but it also necessitates caution. India accounts the largest volume of F&O. This is a crown we should not wish to wear." Currently, India leads the world in the future and options trading, accounting for around 50 percent of the global volume. “Around 93 percent of the investors in this segment have reported losses,” Bhatia added.

Mutual Fund Sahi Hai

Ashwani Bhatia adviced first-time retail investors to enter the stock market through the mutual fund route or through direct investing, instead of the futures and options route.

Retail participation in the securities market has seen a significant growth, surging from 4.1 crore demat accounts in 2020 to 17.5 crores as of September this year. This growth has come on the back of rising mutual fund assets, Bhatia added, which have grown from Rs 23.8 lakh crore to Rs 67.1 lakh crore over the past five years. “The growth has been driven by strong market performance and the realization that mutual funds offer stability and diversity,” Bhatia told the attendees at the investor conference.

Referring to the recent changes in futures and options segment initiated by the regulator, Bhatia said investors have raised concerns about changes in lot sizes etc, but we need to become 'prosperous and cautious'.

Tighter Norms in Derivatives

"This is becoming systemic. We need to become prosperous and cautious. SEBI has tightened margins in F&O, and this will lead to a more cautious approach. This will lead to a more orderly market. To shield investors, measures were also taken to make F&O trading expensive," Ashwani Bhatia said.

Ashwani Bhatia added that measures were taken to make F&O trading expensive for individual investors. From October 1 onwards, STT has increased as well. "SEBI has mandated focus to provide clearer based disclosures to the retail investors and to inform them about potential losses in the offender segment," he said, adding that such explicit warnings and disclosures will make retail investors aware of the complexities and risks associated with this segment, hopefully leading to a more informed decision making.

"Wealth is being created very fast, and I think investors should participate in the wealth creation that is happening in the country," Bhatia said.