SEBI has expressed concerns about the speculative activity in the futures and options segment, based on recent studies on the trading patterns of retail investors. The studies revealed that a large majority of individual F&O traders incurred significant losses over a three-year period, with only a small percentage managing to earn profits. Of particular concern was the increasing involvement of young traders, highlighting the potential risks in this segment.
In the past two years, SEBI has implemented various measures to curb speculation in the equity F&O segment. These measures include increasing contract values, discontinuing certain weekly options, aligning F&O contract expiry on a single day, and imposing additional margins on short index options contracts. Last month, SEBI released a consultation paper proposing new methodologies for calculating open interest, reviewing market-wide position limits, and introducing position limits for single stocks and index derivatives.
One of the proposed changes is the adoption of a “Future Equivalent” or Delta-based approach to calculating open interest in option contracts. This approach takes into account the price sensitivity of each contract by using their “Delta” values, which can impact the open interest levels for stocks and indices. Additionally, SEBI is considering revisions to market-wide position limits to reduce the number of stocks entering the ban period and minimize potential manipulation.
In terms of exposure limits for mutual funds and AIFs in derivatives, SEBI is looking to measure long and short options exposure based on a Delta framework to capture their real price sensitivity. This shift aims to better assess the actual risk and leverage in derivative portfolios, providing a more accurate picture of overall exposure for these entities.
Overall, these proposed changes by SEBI are geared towards enhancing transparency, reducing speculative activity, and safeguarding retail investors in the futures and options segment.
