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After asking stockbrokers to display ‘risk disclosures’ for F&O clients, SEBI is now planning to put equity derivatives segment under long-term additional surveillance measures (ASM).
ASM framework already exists for the equity markets, and it protects investor interest by placing scrips under restriction to prevent market speculation and manipulations. The stocks are moved to the ASM category based on certain criteria.
Recently, an expert panel set up by the Supreme Court had observed that the element of human discretion in surveillance actions should be done away with, as far as possible and inclusion of stock-specific derivatives must be automatic and machine-based.
Investor protection
SEBI has been trying to protect investors in the derivative market after a recent study found that 9 out of 10 individual traders were making losses in the F&O segment. They made an average loss of ₹1.1 lakh during financial year 2022. As high as 90 per cent of active traders incurred an average loss of ₹1.25 lakh. According to SEBI, samples from only the top 10 brokers showed that in FY22 there were 45.2 lakh unique individual traders in the F&O segment, up from just 7.1 lakh in FY19. Of this, 88 per cent were active traders, who were making consistent losses.
According to SEBI, existing mechanism relating to the recommendations for inclusion of stocks into F&O is completely data driven, based on objective criteria, market matrix and action taken report of the entity. Derivative contracts on stocks can be traded on recognised stock exchanges only if the underlying stocks satisfy certain objective criteria. Further, SEBI takes into account other factors such as surveillance concerns, and ongoing investigations while granting approval for the inclusion of stocks in the equity derivative segment.
By bringing additional surveillance measures in the derivatives segment, even the minimal human intervention that may exist today will get automated.
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