Retail traders looking to dabble in Futures & Options (F&O) may soon have to prove they are financially and intellectually prepared for the high risk segment. The Securities and Exchange Board of India (SEBI) is reportedly considering a “suitability exercise” to ensure traders have the required knowledge and funds before stepping into derivatives trading.
According to a report by NDTV Profit citing people aware of the matter, SEBI’s Secondary Market Advisory Committee is expected to take up discussions on this proposal soon. The core idea behind this exercise is to assess whether retail investors understand the risks associated with F&O trading. The regulator may introduce a test to determine suitability, and brokerage firms will likely play a key role in evaluating traders’ eligibility.
As per the NDTV Profit citing the sources added that SEBI may even bring in an examination to gauge investor understanding of derivatives trading.
Last year, the regulator implemented measures to curb F&O volumes, which led to a drop in derivative trading and, in turn, affected revenue for exchanges and brokers.
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SEBI has already taken several steps to regulate the F&O space. On October 1, 2024, the market watchdog introduced key measures, such as
- Limiting weekly option expiries to one per exchange to reduce excessive speculation.
- Mandatory upfront premium payments for buyers.
- Stricter intraday monitoring, requiring exchanges to check positions at least four times daily and impose penalties for limit breaches.
- Raising the minimum contract value for index derivatives to Rs 15 lakh to enhance trading standards.
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