Even as the capital market regulator SEBI is looking to curb retail participation in the derivatives market, how significant are the retail stakes in the segment really?
NSE data for May 2024 showed that 80% of the traders in the options market did turnover of less than Rs 10 lakh for the month. There were 8.46 lakh investors with turnover between Rs 10 lakh and Rs 1 crore, 1.81 lakh investors with turnover between Rs 1 crore and Rs 10 crore, and only 11,837 investors with turnover exceeding Rs 10 crore in options trading.
Commenting on the data, algo trader Kirubakaran Rajendra said on the X platform (formerly Twitter), "More than 80% of the traders who are trading in the options segment have a turnover of less than Rs 10 lakh. Out of 45 lakh active traders, 35 lakh traders are trading with such low turnover.
By increasing the minimum derivative contract value to Rs 30 lakh, they are trying to curb the participation of these retail traders. If SEBI data conclude that 9 out of 10 traders who lose money in F&O belong to this turnover category, they might definitely implement the new rule soon."
On July 9, Moneycontrol first reported the recommendations from the Working Committee on Futures and Options constituted by Sebi. Proposed measures include increasing minimum derivative contract sizes to Rs 20-30 lakhs from the current Rs 5 lakhs, restricting weekly options to one expiry per stock exchange per week, and limiting the number of strike prices for options contracts. These steps aim to curb the escalating volumes in derivatives.
Retail F&O turnover data
SEBI formed an expert committee to address concerns over excessive speculation driven by high retail participation. Key recommendations include significantly raising contract sizes and reducing the number of weekly expiries, potentially impacting trading volumes. Other proposals include fewer strike prices, upfront collection of option premiums, intra-day position limit monitoring, and stricter margin requirements closer to expiry.
A few months ago, SEBI's chairperson Madhabi Puri Buch expressed concern about retail investors in derivatives trading, noting that 89% of them end up losing money despite unfavorable odds.
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