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In a proactive move aimed at shielding retail investors, the Securities and Exchange Board of India (SEBI) has introduced a series of new regulations designed to curb speculative
In a proactive move aimed at shielding retail investors, the Securities and Exchange Board of India (SEBI) has introduced a series of new regulations designed to curb speculative trading in the derivatives market. These changes come in response to the alarming losses that many retail investors have experienced in futures and options (F&O) trading, prompting the need for tighter oversight.
Recent reports highlight that a staggering 93% of the over 10 million F&O traders incurred losses averaging ₹1.8 lakh each during the fiscal years 2022-2024. With household savings increasingly being funneled into speculative trades, SEBI’s latest measures are a timely intervention to protect everyday investors.
Among the key changes, SEBI has raised the minimum trading amount from ₹5 lakh to ₹15 lakh. This significant increase is aimed at discouraging smaller, less experienced traders from engaging in risky F&O trades. Additionally, the regulator has mandated upfront collections of options premiums, ensuring that investors are more aware of their financial commitments.
To further mitigate risks, a 2% margin will be imposed on short options contracts on their expiration day. SEBI has also restricted exchanges from offering derivatives contracts for more than one benchmark index with a weekly expiry, recognizing the heightened risk associated with large trading volumes on expiry days.
SEBI has also taken steps to bolster its regulations surrounding insider trading. The board has introduced a broader definition of a “connected person” and “immediate relative,” which now includes a trader’s spouse, parents, siblings, and even their spouses. While some view this expansion as excessive, it aims to close loopholes that have previously allowed for the misuse of sensitive information.
As of November, employees at asset management companies (AMCs) will fall under stricter insider trading norms, with AMCs held accountable for enforcing effective compliance mechanisms. This move seeks to address instances of privileged information being misused by individuals in key positions.
Promoters will now have the option to renounce their rights entitlements in favor of specific investors, providing them with greater control over ownership structures. Additionally, SEBI has reduced the timeline for rights issues from an extensive 317 days to just 23 days, streamlining the process considerably. However, some analysts believe that this timeline is still close to that for completing a preferential allotment, which may not significantly deter companies.
Another exciting initiative is the introduction of MF Lite, a light-touch regulatory framework for mutual funds focused on passively managed schemes. By lowering thresholds related to net worth and profitability, SEBI aims to encourage the entry of more funds into this space. This approach also allows existing AMCs to spin off passive schemes to an affiliated entity, promoting innovation and competition.
SEBI’s new framework also includes a product designed for retail investors looking to invest around ₹20 lakh with direct exposure to equities. This initiative offers a safer investment avenue and helps protect investors from falling prey to unregulated schemes and influencers.
As these changes unfold, they represent a significant shift in India’s financial landscape. By prioritizing investor protection and encouraging transparency, SEBI is taking commendable steps toward a more resilient market, ensuring that retail investors can engage with confidence.
