SEBI’s proposed F&O eligibility rules face pushback; brokers cite volume hit, demand Bank Nifty restoration

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The Securities and Exchange Board of India (SEBI) is reportedly considering tightening access to derivatives trading with new suitability norms, a move that has ignited a debate among market experts on the timing and efficacy of further reforms. In a discussion on CNBC TV18, experts weighed in on the potential changes and the recent regulatory actions that have already impacted market volumes.

Rajesh Baheti, Managing Director, Crosseas Capital Services, expressed caution about introducing more reforms at this juncture. While he had previously favored implementing an eligibility criteria over tweaking products, he now believes the timing might be inappropriate.

"I think SEBI has gone on an overdrive to deny many many rumours surrounding this after the changes they have introduced and we clearly see that the exchange volumes have moderated. So I don't know whether this is the right time to go ahead and push for further reform or wait for the new data to settle," Baheti stated.

He called for a deeper analysis of SEBI's study which found that around 90% of retail investors lose money in the Futures and Options (F&O) segment. Baheti argued it is crucial to understand if these losses are incurred by individuals betting their salaries with no other savings, or by those with the financial capacity to absorb them.

Meanwhile, the broking community is urging the regulator to reverse a recent change. K Suresh, National President at ANMI, the apex brokers' association, revealed that they have formally written to SEBI requesting the restoration of Bank Nifty weekly contracts. He highlighted a significant 45% dip in options volume since the change, which has directly affected brokers' revenues.

"We must also keep in mind that broking is also an industry. We are directly and indirectly giving employment to many people… the employment is at stake because of revenue reductions," Suresh explained. He added that the removal of the weekly Bank Nifty contract, a popular instrument for short-term hedging, has disrupted traders' strategies.

Suresh argued that instead of imposing restrictions, the focus should be on investor education to foster a market of informed participants. He also pointed out that the Bank Nifty index itself has been realigned and is now well-balanced, reducing earlier concerns about its potential for manipulation.

Offering a middle ground, Baheti suggested that if the Bank Nifty weekly contract were to be reintroduced, its expiry should be merged with the Nifty expiry day. "If SEBI wants to control the volumes, you have to merge it with the Nifty expiry," he opined. This would mean a trader's capital could only be used once on the expiry day for either contract on the NSE, thus achieving the regulator's aim of curbing speculative fervor without completely removing a popular product.

On what a potential suitability threshold for F&O trading could look like, Baheti proposed a criterion based on existing investments. "If you could bring in a criteria that says you must have ₹5 lakhs worth of capital market savings in either by way of direct equities, mutual funds, or whatever… you can trade in the F&O," he suggested. He believes such a measure would effectively filter out speculators who treat options as a lottery, which he presumes is SEBI's primary target. Suresh, however, maintained his stance, emphasizing that the reintroduction of the Bank Nifty is essential for providing a necessary hedging instrument and reviving market volumes.