SEBI Chief Warns Against Market Risks: Households Lose Big on Futures and Options Bets
SEBI Chief Madhabi Puri Buch is determined to keep the financial markets safe. She’s making it clear that individual companies should not handle the KYC (Know Your Customer) process alone because it can lead to big problems, as seen with Paytm Payments Bank.
Back in January, the Reserve Bank of India placed restrictions on Paytm Payments Bank due to multiple issues, including mishandling KYC procedures. Buch stressed that if SEBI let Paytm into the system without proper checks by a central agency, it could cause major troubles. SEBI’s KYC Registration Agency (KRA) makes sure that once a person’s identity is verified they don’t have to do it again in capital markets. This helps prevent fraud and it keeps the market safe.
Buch is also very concerned about the huge financial losses that families face in the futures and options (F&O) market. She estimates that these losses could be as high as Rs.60,000 crore each year. This isn’t just a problem for individual families—it’s a problem for the entire economy. She questioned why these losses are not seen as a bigger issue when this money could be better used for investments like IPOs and mutual funds.
To address this, SEBI has proposed stricter rules for the derivatives market to protect small investors and make the market more stable. A recent study by SEBI found that 90% of trades in the F&O segment result in losses. The regulator wants to stop these losses.
Options trading in indices has increased manyfold from Rs.4.5 lakh crore in 2018 to Rs.140 lakh crore in 2024. The turnover in total derivatives has also gone up during this period from Rs.210 lakh crore to Rs.500 lakh crore. More and more individual investors are stepping into the market; participation has risen from 2% to 41%. However, a recent study by SEBI revealed that more than 70% of the investors lost money in FY23 in the cash segment of equity.
Further safeguarding investors’ interests, SEBI is mulling over a proposal under which big brokers will be mandated to provide. Application Supported by Blocked Amount (ASBA) facilities in the secondary market. This system, which is already successful in the primary market, lets investors block funds in their bank accounts until a trade is confirmed. This could potentially save investors Rs.2800 crore.
In short, SEBI is working hard to prevent problems like those seen with Paytm. It aims to protect investors from significant losses in the F&O market. SEBI’s goal is to create a safer and more stable financial environment.
