Is SEBI Revising Derivatives Rules to Safeguard Retail Investors?
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Synopsis
The Securities and Exchange Board of India (SEBI) is taking significant steps to enhance the derivatives market regulations aimed at protecting retail investors without hampering market activities. Chairman Tuhin Kanta Pandey emphasizes a balanced approach in the upcoming reforms that promise swift implementation.
Key Takeaways
- SEBI is revising derivatives rules for better investor protection.
- Focus on maintaining market stability while safeguarding retail investors.
- Over 800 public comments have been received for proposed reforms.
- New methods for calculating open interest and MWPL are under consideration.
- Concerns over high trading volumes and investor losses were raised last year.
Mumbai, April 30 (NationPress) The Securities and Exchange Board of India (SEBI) is currently engaged in revising regulations pertaining to the derivatives market, aiming to shield retail investors while maintaining market stability, as stated by its Chairman Tuhin Kanta Pandey on Wednesday.
Pandey emphasized that SEBI is not looking to impose restrictions on the futures and options market but rather taking a measured approach.
Discussing the regulator's recent recommendations with NDTV Profit, he mentioned that the objective is to enhance the market's framework and mitigate unnecessary risks for small investors.
"We are in a constant state of reviewing the market, collecting feedback, and are prepared to implement changes as needed," said Pandey.
Previously, the market regulator circulated a consultation paper concerning suggested reforms in futures and options, and according to Pandey, over 800 public comments have been received.
These responses are currently under thorough evaluation, with a final verdict on the proposed modifications anticipated soon.
The SEBI Chairman indicated that many of the suggested measures do not require board approval and can be enacted through administrative processes.
This implies that the new adjustments, once confirmed, could be implemented swiftly. A significant proposal includes altering the method of calculating open interest (OI) in the equity derivatives market.
SEBI is contemplating a transition from the notional value method to a 'Future Equivalent' method. This change aims to prevent the artificial inflation of open interest, which can unnecessarily push stocks into a ban period.
Furthermore, SEBI has proposed a revision in how the market-wide position limit (MWPL) is computed. At present, the MWPL is fixed at 20 percent of a stock's free-float market capitalization.
The new recommendation suggests it should be the lesser of 15 percent of free-float market cap or 60 times the average daily delivery value (ADDV) in the cash market.
This initiative seeks to tighten restrictions on speculative trading without hindering legitimate market activities.
Last year, SEBI raised alarms over elevated trading volumes in the futures and options segment, revealing in a report that nine out of ten retail investors were facing losses in derivatives trading.
Point of View
It's crucial to recognize SEBI's proactive approach in revising derivatives regulations. The focus on retail investor protection, combined with a commitment to maintaining market stability, reflects a responsible regulatory framework. As developments unfold, it remains vital for investors to stay informed and engaged with these changes.
NationPress
18/06/2025
Frequently Asked Questions
What is SEBI's main goal with the derivatives rule changes?
SEBI aims to enhance the protection of retail investors while ensuring that market activities remain unaffected.
How many public comments has SEBI received on these proposals?
SEBI has received over 800 public comments regarding the proposed reforms.
What is the proposed change regarding open interest calculations?
SEBI is considering shifting from the notional value method to a 'Future Equivalent' method to avoid artificial inflation of open interest.
How does the new MWPL proposal differ from the current one?
The new proposal suggests that MWPL should be the lower of 15 percent of free-float market cap or 60 times the average daily delivery value in the cash market.
What concerns did SEBI express last year?
SEBI raised concerns about high trading volumes in the futures and options segment, noting that nine out of ten retail investors were incurring losses.
