Sebi trashes reports of plans to curb retail participation in derivatives segment

Sebi has reiterated that any change in the regulatory framework will go through a process of comprehensive consultation with all stakeholders.

After reports suggested that the market regulator may place curbs on derivatives trading based on investors’ overall wealth, the Securities and Exchange Board of India (Sebi) clarified that it was not looking to reduce retail participation in the derivatives segment.

A circular released by Sebi on July 29 stated that the regulator is only considering simplification of stock brokers’ process of onboarding clients, by adoption of a risk-based approach.

Also read: Sebi seeks curbs to limit retail investors' derivatives risk: Report

Referring to the media reports, it said that there is “no proposal to curb retail participation in derivative markets”.

The regulator had issued a circular in December 2009, instructing stockbrokers on how to deal with their clients, in terms of on-boarding process, documentation and so on. It had asked them to have documentary evidence of financial capability for all clients.

“The stock broker shall have documentary evidence of financial details provided by the clients who opt to deal in the derivative segment. In respect of other clients, the stock broker shall obtain the documents in accordance with its risk management system,” the regulator had said.

To make compliance easier, this requirement is being reconsidered.

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“Sebi, in line with the objective of ease of doing business, is at an early stage of evaluating if the aforesaid circular can be made applicable based on risk assessment of the clients. This would promote ease of compliance for brokers and investors. Further, SEBI’s focus has always been on adequate risk management, while ensuring ease of doing business and compliance, rather than on placing any curbs on trading,” the July 29 circular said.

The markets watchdog has reiterated that any change in the regulatory framework will go through a process of comprehensive consultation with all stakeholders including the public, before any decision is taken by the Board.

Tejas Khoday, co-founder and CEO of the brokerage FYERS, called Sebi's move a positive one. "It will make it easier for retail investors to enter the markets, while still ensuring that only those investors who are aware of the risks and can manage them are allowed to trade in the derivatives segment."

The a number of benefits to the market from this including reduction of compliance hassle for retail investors and curbing of excessive speculation and leverage in the derivatives segment. Khoday said that they are looking forward to guidelines from Sebi on the matter.