SEBI's new move to cut retailers participation in F&O!

[cinderblock]

if you have read the sebi document they discussed this issue of option turnover and they have both data by premium wise turnover and by notional value .

I have not.

But since BN expiry is now 4 times a week premium turnover will also be higher. Of course it depends on how much higher it is but if there are more opportunities to trade on expiries the premium turnover will also be higher.

For instance, at expiry, the FNO turnover is almost twice that on regular days. More the number of expiries more the volume traded. On one hand they introduced weekly expiry and now they are worried about why the retail turnover has increased

BTW, a member of TJ has also started webinars on how to trade exclusively on BN Expiry days ---- and he / she is not the only one out there!

 

[afin]

This will stop.. cant blame them for this though..

Right now the only thing on mind is to make big my trading capital.

 

[cinderblock]

Right now the only thing on mind is to make big my trading capital.

A word of advice. You need to concentrate on the process. The more you think about desperately increasing the capital the higher the chances are you will lose it.

 

[Riskyman]

What SEBI is trying to say is if you do not own a Mercedes, you cannot drive on the expressway with your old dabba Maruti car because it may not be road worthy. why not have tests to determine road worthiness? Riding a super bike is also very risky but yet it is allowed to those that have a valid licence. So, why not license traders too? SEBI has test centers in many cities since they conduct many certification programs. So, SEBI can conduct basic tests to determine if an aspiring F&O trader has the required knowledge of the the derivatives market. If a candidate clears this exam, then the broker can allow the trader without any restrictions of net worth.

SEBI has a fair point in saying that people take undue risks in derivatives. Many of us here may be responsible and knowledgeable but a large majority of people have no clue how/why options are priced the way they are. Hell, many do not even know why futures trade at a premium to spot prices. From my own personal experience, I can say that I lost a lot of money in F&O during my learning days, most of which I can attribute to a lack of through understanding of the market dynamics. For ex buying options when IVs were going through the roof etc. In hindsight, I think that if I had the knowledge back then, so many costly mistakes could have been avoided. A certification is a better way than impose blanket bans or by making participation difficult.

Derivatives are not speculative instruments. They are only meant for hedging and should be treated as such. When it is misused, regulators have no choice but to step in and pull the plug. I, personally do not approve of SEBI's plan to restricting traders via the net worth route. I am sure there are better ways of achieving this. (Education people may be one way) I'm ok with some sensible restrictions in F&O trading. But, I strongly oppose any move by SEBI to impose any restrictions on Equity trading and investments India is a growing economy and one of the best ways for common man to escape the shackles of impoverishment is by participating in India's growth story. What better way of doing this than by participating in Equities??

 

[augubhai]

What SEBI is trying to say is if you do not own a Mercedes, you cannot drive on the expressway with your old dabba Maruti car because it may not be road worthy. why not have tests to determine road worthiness? Riding a super bike is also very risky but yet it is allowed to those that have a valid licence. So, why not license traders too? SEBI has test centers in many cities since they conduct many certification programs. So, SEBI can conduct basic tests to determine if an aspiring F&O trader has the required knowledge of the the derivatives market. If a candidate clears this exam, then the broker can allow the trader without any restrictions of net worth.

Exactly, it's actually high time a certification is made mandatory to trade in leveraged instruments.... like a driving license. Though people will still find loopholes and trade through proxies.

 

[TraderRavi]

what did they actually say about options ? how do they plan to calculate the exposure by premium or by nominal value ?

They discussed this issue that using notional value option turnover might be looking high and the commitee found that no standard formula is used in world markets for option turnover so they instructed the exchanges to continue to provide both types of turnover.

4.3 Ratio of turnover in derivatives to turnover in cash market is around 15 times. To what extent the drivers of this ratio in India are comparable with drivers in other markets.
Feedback
4.3.1 Total 84 responses have been received on this issue, out of which 51 responses are from institutions including stock brokers and 30 responses are from individual investors.
4.3.2 The majority (74%) of the respondents felt that notional turnover has a multiplier effect due to the underlying price. Current notional reporting of turnover (in case of options) unduly inflates turnover of derivatives.


4.3.6 The ratio of turnover in equity derivatives segment after taking into account only the premium paid for option contracts to turnover in equity cash segment, on an average, ranges between 2 to 4, while the same ratio based on notional turnover ranges between 12 to 15. This is broadly in line with the comparable statistics seen in different jurisdictions.
4.3.7 Internationally, there is no uniform practice of disseminating derivative turnover either on notional value or premium value. As per data made available by World Federation of Exchanges, option turnover is generally disseminated on the basis of notional value.
4.3.8 In 2015, SEBI advised exchanges to disseminate option turnover on premium basis along with notional values in order to increase transparency and provide additional information to market participants.
Proposal:
4.3.9 In view of the above, it is proposed that we may continue with the option turnover disclosures on premium along with notional value.

 

[afin]

A word of advice. You need to concentrate on the process. The more you think about desperately increasing the capital the higher the chances are you will lose it.

Thanks focused on the process only.

Can't afford lapses now. My inexperience had hit me hard in the past.

 

[prakaash.22282]

Will this move applicable for Commodity segment also?
I hope this will not happen for any segments. Hope for the best, don't have any option now. Just to concentrate on day to day life, its very hard to be normal. For me I am leaving my job to become a full time trader. My testing phase and losing phase is over. If this happens my life will have to go for alternate option which is very difficult for me. Very frustrated.

 

[NJ78]

The broker's main job is risk management. SPAN margin exists for this very purpose and is as per SEBI's own guidelines. By specifying that stock XYZ requires such-and-such amount of margin, SEBI implicitly (and officially) acknowledges the amount of risk involved in that specific position. As long as the trader is able to maintain the said margin requirements, he should be allowed to trade. That's it. The discussion should've ended there instead of going into micromanagement. If it isn't broke, don't fix it.

 

[Riskyman]

Exactly, it's actually high time a certification is made mandatory to trade in leveraged instruments.... like a driving license. Though people will still find loopholes and trade through proxies.

So be it but the regulator can always keep a check if trading volumes start appearing abnormal. See, its is like this.... any government or a government organization has to seem responsible in front of its citizens. if it allows uncontrolled speculation, then it will lose face in front of the public. Therefore, they have to do what they have to do. Like in the case of banning liquor shops from the highways or plastic ban in maharastra.. What happened eventually? Those that want to drink will stack up enough alcohol for the journey. But the govt makes claim that it has done what it had to do to curb drunk driving. In the case of plastic ban in maharastra, you can see that shop keepers are being allowed to use government approved plastic bags which are 3 times more expensive . Being the government itself is also an hazard.

Kya kare bhai? India hai yeh.