F&O volumes a macro concern, says Sebi chairperson Madhabi Puri Buch

To soon float a consultation paper on curbing derivatives euphoria

The rising volumes in the derivatives segment have now become a macro-economic issue instead of being a risk concentrated to only a few individual investors, said Madhabi Puri Buch, chairperson of the Securities and Exchange Board of India (Sebi). 

Buch’s comments come at a time when financial regulators have cautioned against the rising euphoria in the futures and options (F&O) segment, where daily turnover has shot up to nearly Rs 400-trillion in notional terms. 

Speaking at an event conducted by SBI Mutual Fund on the occasion of completing Rs 10 trillion in assets under management, Buch highlighted the unanticipated surge in the volumes and loss of household savings to speculative activities. 

“Many young people who have entered that market have lost tons of money, nobody could have expected that. It has now reached a state where the micro-objective of protecting the individual investor has to change to thinking about the macro-issues. At a macro-level, we are worried that the household savings are not going into capital formation but into speculative activities,” Buch added. 

The market regulator is planning to issue a consultation paper to curb the turnover in the derivatives market. 

The Secondary Market Advisory Committee of Sebi met this Monday to discuss measures to address the concerns. The committee is reviewing the current regulations and product offerings on seven parameters including lot size, limiting option expiries, among others. 

Sebi is also mulling over nearly half a dozen pop-ups and disclosures of factual data on risk parameters at the broker end at the time when the client takes a trade. 

In her earlier comments on “froth” in the several pockets of the market, specifically smallcaps, Buch said the next time the regulator may not have to break the convention and bring forth such issues as the industry may take steps on its own.  

Buch added that nearly Rs 80,000 crore worth IPOs are in the process of getting approvals while Rs 40,000 crore worth IPOs have already been approved and are in the pipeline. 

On the proposals for the new asset class in the mutual funds, Buch said that there were participants operating as illegal portfolio management services (PMS) and the regulator’s proposals are to address the market demand for such a category. 

Addressing queries on the global tech outage faced on Friday, the regulator said that the market participants have developed enough back-ups to mitigate such risks and investor protection platform in case of broker outages are triggered only when certain timelines or thresholds are breached. 

The Sebi chairperson also said that the REITs and InvITs can grow in size equal to the current size of India’s GDP. Buch also called for the sachetisation of financial products or systematic investment plans (SIPs) of a smaller ticket size. 

The Sebi chief added that it will bring a consultation paper to address the arbitrage in licensing of Research Analysts and other advisors.