Why Sebi's derivative curbs look more like bear market precaution

64025465 64024870 There is a saying: the ills of the stock market remain covered up in a bull market covers, but get visible in a bear market. The Securities and Exchange Board of India’s latest move to put checks and balances in the derivative segment of the equity market somewhat bears this out.Sebi on Wednesday announces a set of fresh measures to tighten the derivative markets framework in a bid to curb excessive speculation and prevent small investors from entering the high-risk space. This has kicked off a debate among key stakeholders, who are likely to be impacted by this move.While the Sebi decision is based on internal reports and expert committee’s recommendations, the move has propagated an assumption that there is still lack of proper investor education and, therefore, Sebi has taken such steps in the interest of retail investors. But will it work? Or is the regulator simply doing its duty of ensuring investor protection?Last year, Sebi had raised the bar for retail investors by increasing the ticket sizes to Rs 5 lakh. Though the limits of contract sizes had been increased to Rs 5 lakh, still there was no visible drop in volumes in the derivative market, thanks mainly to the bull market sentiment.In fact, there has been tremendous increase in trading volumes, especially in the options segment, which anyway requires only premium payment to take a bet. However, the move to settle certain companies’ contracts with physical settlements could slightly impact volumes. It is very likely that this, too, would not impact the derivative volumes materially.By nature, the stock market is to speculate and, therefore, a bull market will always keep on driving volumes in derivatives, which are speculative products. In developed markets, a fair share of stock investors and traders happen to be individuals or retail investors. According to one study, about a quarter of all US adults with internet access are retail online traders and it is estimated that 62 per cent of the population own stocks. On that count, India is still a far cry as equity penetration in the country is still in single digits.

from The Economic Times https://ift.tt/2HSgEfC