Capital Market regulator Securities and Exchange Board of India (SEBI) may bring in investor eligibility criteria for retail investors to participate in the futures and options segment of the equities market.
An official from the country’s largest equity exchange National Stock Exchange (NSE) has said that the Sebi is considering these measures to protect small investors from the vagaries of the F&O market.
“While the regulator has already made some changes to restrict F&O trading, we have approached the regulator to bring in investors eligibility requirements like those for investment in Alternative Investment Funds (AIFs). The Sebi has said it may consider these measures as part of the second round of changes,” Sriram Krishnan, Chief Business Development Officer, NSE, said in a media interaction in New Delhi.
Krishnan advocated the idea of accredited investors for F&O trading as well. Currently, only accredited investors, who are usually high-net-worth individuals, are allowed to invest in hedge funds, private equity, etc. Individuals seeking to invest in AIFs should have at least Rs 5 crore liquid net worth and maintain an annual gross worth of Rs 50 lakh.
“You define investor eligibility framework, and disproportionate trading framework, which means you define how much one can trade. That's the way you can protect the investors and prevent them from going into certain products,” said Krishnan.
It must be mentioned here that Sebi has already taken certain measures to curb high volume in the F&O segment of the market. These include increasing the lot size by up to three times, restricting weekly expiry to a single contract, levying an extreme loss margin (ELM) of 2 per cent on short index contracts as well as raising the transaction charges securities transaction tax (STT).
These changes are being implemented in a phased manner from October this year. The last set of changes will be implemented by 1 April 2025.
Krishnan said that so far there has been no change in F&O trading volume, but the impact of the changes would be visible by January and February next.