Households losing Rs 60,000 crore annually in F&O trading: Buch

SEBI on F&O trading: Securities and Exchange Board of India (Sebi) chairperson Madhabi Puri Buch stated on Tuesday that households are incurring losses of up to Rs 60,000 crore annually in the futures and options (F&O) segment.

Speaking at an event at the National Stock Exchange (NSE), Buch questioned why such significant losses in derivative markets are not considered a "macro issue." She noted, “If Rs 50,000-60,000 crore a year is going away into losses in F&O whereas that would have been productively deployed as maybe the next IPO round, maybe MF, to other productive purposes, why is that not a macro issue?”

A Sebi study had previously indicated that 90 per cent of trades in the F&O segment result in losses. Consequently, the capital markets regulator released a consultation paper on Tuesday proposing measures to limit this activity.

NSE's chief executive and managing director Ashish Kumar Chauhan responded to concerns about curbing fee-yielding trades, affirming that the exchange will adhere to regulations. Buch emphasised that while there may be a short-term impact on exchange fees, the long-term benefits will be advantageous for all stakeholders.

She also clarified that exchange-traded funds (ETFs) cannot replace the riskier derivatives activity due to differences in liquidity and leverage dynamics.

Addressing the issue of using the same KYC (know your customer) validation for both bank customers and mutual fund investors, Buch referred to complications seen with Paytm, stating, “We will not allow for a Paytm-type contamination in our market.”

"We all saw what happened in Paytm. Because in the banking system, there is no KRA type system, the problem of Paytm stays in Paytm. It does not spread to other banks. But if we allow Paytm to come into our system, and no KRA, then it contaminates the whole system," she explained, stressing the importance of a central KRA (KYC Registration Agency) for validation.

Regarding fininfluencers, Buch acknowledged the difficulties in getting registered as an investment advisor and announced that Sebi will soon be rationalising the process. She mentioned that false claims are being spread by some platforms, and an NSE Group entity has developed a performance validation mechanism that will soon be implemented.

Buch also revealed plans to propose to Sebi's board that the ASBA (Application Supported by Blocked Amount) mechanism be made mandatory, initially for qualified brokers.

She addressed misconceptions about brokers' earnings, clarifying that brokers earning Rs 2,800 crore from trades will have this income reclassified as broker fees instead of exchange fees.

Buch expressed her frustration with the mutual fund industry's lack of suggestions to facilitate investments by the Indian diaspora and called for broader, principle-based regulations on artificial intelligence.

Responding to a question, Buch asserted that it is wrong to equate stock exchanges with crypto exchanges, referencing ongoing challenges with Wazirx. "$250 million cannot vanish (in the exchanges) and be called as an Act of God," she stated firmly.

(With PTI inputs)