Retail traders who want to experiment with Futures & Options (F&O) may soon need to demonstrate that they are both intellectually and financially equipped for the high-risk market. According to reports, the Securities and Exchange Board of India (SEBI) is thinking about conducting a “suitability exercise” to make sure traders have the necessary resources and expertise before engaging in derivatives trading.
Discussions about this idea are anticipated to begin soon by SEBI’s Secondary Market Advisory Committee. Assessing whether retail investors are aware of the dangers involved in F&O trading is the main goal of this experiment. The regulator may implement a suitability test, and brokerage firms will probably be crucial in assessing traders’ eligibility.
The regulator’s efforts to reduce F&O volumes last year resulted in a decline in derivative trading, which in turn had an impact on exchange and broker revenue.
The effects of recent F&O regulations
To control the F&O sector, SEBI has already taken many actions. The market watchdog implemented important steps on October 1, 2024, including
- Buyers are required to pay the premium up front.
- Tighter intraday oversight, with fines for limit violations and a requirement that exchanges examine positions at least four times every day.
- To improve trading standards, the minimum contract amount for index derivatives would be raised to Rs 15 lakh.
- Limiting each exchange to one weekly option expiry to curb excessive speculation.
