F&O trading: Do retail investors really need Sebi's big brother oversight?

livemint.com:

₹50,000 crores a day with a notional value to premium ratio of 500+, a really big black swan move (10% lower or upper circuit) could easily wipe out the margin of many option sellers. Retail traders and larger players also sell options in large quantities, and the systemic risk of extreme blow-ups increases with higher option participation. Second, retail investors don’t really need “protection" from overtrading.

We should educate them, but beyond that, acting like a big brother by refusing people the opportunity in a fair market, is plain wrong. The markets are not gambling dens or “dabba" centers, where the game is rigged against you. The markets are where you can build odds in your favour, and there are many traders that started really small and grew to become rich.

The low rate of success exists in every large opportunity - from exams for IIT seats, to startups and kirana shops, the failure rate is ridiculously high, but it would be a travesty if we disallowed people from these opportunities because of that. We don’t need our people to be hand-held at every step, and if you look carefully, not many retail investors are complaining; it’s the larger, more established players, and that has included me. Are we being overprotective? That said, increasing lot sizes or bumping up margins might be a good idea to reduce the impact of the systemic risk that the burgeoning market involves.

Value-at-risk (VAR) is used to calculate margins, but it’s a mathematical slave of the recent past, which hasn’t seen much volatility. If volatility goes up slowly, VAR works. If it’s “quantum", i.e.