SEBI Set to Tighten Regulations on Derivatives Trading Soon - What Investors Need to Know

The Securities and Exchange Board of India (SEBI) is set to release a draft circular introducing tighter regulations on derivatives trading in the near future. Sources close to the matter have confirmed that these proposed regulations will not require the approval of SEBI's board, making the implementation process more streamlined.

This announcement comes after the recent board meeting on September 30, where no significant changes were made to existing index-derivatives rules. Moneycontrol previously reported on July 9 that SEBI was considering a new framework based on recommendations from a Working Committee on Futures and Options (F&O). This committee was formed to address concerns over excessive speculation in the derivatives market.

India's F&O market has experienced explosive growth in trading volumes since the COVID-19 pandemic, but this surge has not come without its drawbacks. According to SEBI's estimates, a staggering 92.5 lakh individual traders and proprietorship firms suffered losses totaling approximately ₹51,700 crore in FY23, excluding transaction costs.

A recent study by SEBI revealed even more alarming statistics, indicating that over the past three financial years, individual traders incurred aggregate losses of around ₹1.8 lakh crore. Shockingly, nearly 93% of over 1 crore investors—essentially nine out of ten traders—experienced average losses of ₹2 lakh each.

These forthcoming regulations aim to protect retail investors and ensure a more stable trading environment in the derivatives market. The proposed changes are expected to enhance investor confidence and mitigate the risks associated with high-stakes trading.

As SEBI prepares to implement these measures, market participants are urged to stay informed and adjust their trading strategies accordingly. The regulator's focus on safeguarding individual investors reflects a growing commitment to maintaining the integrity of India's financial markets.

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