'Walk with a blindfold on a highway': F&O crackdown ahead? What stock market analysts say

Retail investors trading in futures & options (F&O) segment are a worried lot. In past few days, several reports emerged that hinted at Sebi's intent to reduce derivatives volatility. It includes reports of a Sebi Committee proposal on increasing the minimum lot size of derivative contracts to Rs 20-30 lakh from Rs 5 lakh at present; limiting number of weekly expiries; higher margins for options contracts; and moving F&O from the head of ‘business income’ to ‘speculative income’.  

Any steps taken in the interest of market and to protect retail investors’ interest is and should be welcomed, Apurva Sheth, Head of Market Perspectives & Research at SAMCO Securities said in a Business Today survey.

"Higher margins for option contracts will deter small investors with limited capital from trading in options segment. Other measures like having a minimum net-worth criteria to activate the F&O segment could be explored. One must understand that the regulator can only ensure that markets are fair and efficient. The onus is on retail investor to educate himself/herself before trading in a high-risk derivatives segment. If you decide to walk with a blindfold on a highway, then nobody can help you," he said.

In a post on X, Deepak Shenoy of Capitalmind said: "The increase in contract size would mean more serious players will come in and you get a lot less of the gambler territory. The one expiry per week is a decent move to reduce speculative interest but honestly, it will still mean two days of the week (and we saw massive interest even with 1 day of the week earlier)."

Later, Shenoy clarified that there is nothing wrong with speculation but a speculation with leverage requires deeper pockets, as derivative options tend to be 10-100 times leveraged.

 

Manish Chowdhury, Head of Research at StoxBox said he does not anticipate higher margins for F&O trading as the recent raft of new contract launches by both the BSE and NSE, post approval by the regulator, indicate intention to enhance market participation. "Also, our sense is that any move to tighten the system could prove counter-productive as it would signal uncertainty in decision-making at the apex level," he said.

Indian market has the highest volumes for options contracts globally and that the government and the market regulator are aware of the risks involved, said Nishit Master, Portfolio Manager at Axis Securities PMS. 

"These steps, including higher margin requirements and/or larger lot sizes, among others, are welcome and will contribute to the market's long-term health," he said.

Futures and options trading adds depth to the stock market and there is a robust mechanism to monitor excesses at exchange level, said Shrey Jain Founder and CEO at a deep discount broker SAS Online.

"In the overall interest of the market participants the mechanism needs to be reviewed and updated wherever necessary.  However, there is no need to introduce new taxes or tax deducted at source on derivative transactions. Such a move will be detrimental to the trading sentiment in particular and stock market in general," he said.