Sebi to introduce more safeguards for F&O as traders' losses mount

Regulator's study on F&O segment shows over 90% traders incurred losses in FY22, with the average hit over 15x the earnings of the 10% who made profits

The Securities and Exchange Board of India (Sebi) on Wednesday said plans to impose additional safeguards for retail investors dealing in the futures and options (F&O) segment.

The move follows a study by the regulator which showed widespread losses by individual investors.

In the financial year 2021-22, about 90 per cent of the active traders incurred losses, at an average of Rs 125,000. Furthermore, the average net loss of these 90 per cent individuals was over 15 times the earnings of the 10 per cent who made profit.

The report depicts the disparity amongst the F&O traders as the top one per cent of the traders accounted for nearly 51 per cent of the total net profit earned while the top five per cent represented 75 per cent of the total profits.

The stark study dashes the notion that many small investors harbour making a quick buck in the F&O segment.

“Periodic data analysis and disclosure of this nature can significantly enhance investor awareness around market risks,” Sebi said in a release.

 

The regulator didn’t elaborate on the additional measures it plans to announce. Market players said the new guidelines could include checking for investors’ awareness towards the F&O segment, linking trading exposure to networth and enhanced warnings by brokers to their clients.

The study includes data from top 10 brokers accounting for over two-thirds of the overall individual client turnover in the equity F&O.

The total number of unique individual traders from these sample brokers has risen over 5-times to 4.52 million in FY22 from 710,000 in FY19. Of these 4.52 million traders, 88 per cent are active.

The share of younger individual traders has also risen significantly. Participation from traders in the age group 20-30 years surged to 36 per cent in FY22 from just 11 per cent in FY19. This age group also accounts for 32 per cent share in profit.

Over and above the net trading losses incurred, loss makers expended an additional 28 per cent of net trading losses as transaction costs—depicting further outflows from the traders.

The study also throws light on the gender gap in participation in the F&O segment. Female participation has risen from 16 per cent to 19 per cent from FY19 to FY22. Participation from cities other than the ones in tier-3 and above is also high at 79 per cent of total individual investors.