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??
How SEBI or any regulator can step-in to define "Product Suitability" for its participants? It is the very work of the self-participant to figure that out based on their personal needs.
SEBI's stance to protect newbies is justified, but, assuming the experienced retailers under the same hood is discriminatory.
So how about allowing participation in the Derivatives segment by:
1. Those meeting the Net-worth/ITR, or,
2. By Certification, or,
3. By past trading records submitted by brokers showing the ability of an individual to trade.
There must be clear-cut easy guidelines laid out giving chance to everybody willing to participate and not just throttle everybody's neck with hard-and-fast rules.
Stipulating Certification won't be that challenging as the process is already in place. SEBI would just need to deem the required NSE certifications (NISMs) out of the available ones or implement their own. Aspiring participants get themselves enrolled, appear for the exam, clear it and send a copy of the certificate to the broker, who will acknowledge and intimidate SEBI (or whomever concerned) about the same.
I think doing this will be win-win for both SEBI and Retail. As it will be based on either money-power or merit-power for participation in Derivatives. Those with money, takes the risk. Those without money but is accredited or by virtue of previous track-record, knows the risk.
Now it will be very childish on SEBI's part, if they cap the Cash segment too on the basis of Networth/ITR or Merit or whatever.
