F&O trading: SEBI forms committee to enhance investor protection & improve risk management

The Indian market regulator SEBI has formed a working committee to enhance investor protection and improve risk management in equity derivatives, reported Moneycontrol. This comes as SEBI is looking to tighten its grip on Futures & Options trading.

Working group

As per Moneycontrol, the 15-member group is headed by former RBI Executive Director G Padmanabhan and includes representatives from the market ecosystem, such as exchanges, brokers, clearing corporations, mutual funds, a major corporate house, and academic experts in finance and risk management from the Indian Institutes of Management.

The working group's responsibilities includes suggesting near-term and medium-term measures to enhance investor protection in exchange-traded derivatives (ETDs), and improve risk metrics and risk architecture of ETDs, with a view to enhance market development and regulation.

Derivative markets boom

India has been witnessing a surge in retail participation, causing concerns among the government and regulators about potential widespread losses in the event of a market crash.

Earlier, last week, Governor Shaktikanta Das said that the RBI, along with SEBI, is keeping a close watch on the surging equity derivatives volumes, which have now dwarfed the nominal GDP of the country.

Similarly, Finance Minister Nirmala Sitharaman, in May said that the rapid rise in retail F&O trading could adversely affect investor sentiment and household finances.

In early June, SEBI had floated a discussion paper proposing that the derivatives contracts on individual stocks should have sufficient liquidity and trading interest from market participants – currently a requirement only for contracts on indexes.

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