Putting some sting into the F&O tale
derivatives should achieve their desired objective. The regulatory intent is to sustain adequate depth in the F&O segment to facilitate hedging. Trading volumes in F&O will, thus, have to decline significantly, but not to a point that affects price discovery. As follow-up measures, Sebi will have to ensure the purged retail speculation does not resurface in other market segments, such as smallcaps. The trading ecosystem will, on its part, have to recover from the revenue setback, and its business models in the new regulatory scenario should come under tighter scrutiny. Brokers are most vulnerable to the systemic interface with the retail investor. Finally, vigilance is necessary that buckaroo retail investing does not migrate to shadow trading platforms such as dabba trading that operate beyond the regulatory gaze.
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It would be simplistic to expect estimated losses incurred by retail traders in derivatives will be recycled into the more productive cash trades. The speculative intent will seek outlets within the financial system or dial down with effective policing. The effect on the market for, say, IPOs will be difficult to be determined at the onset of deleveraging the derivatives trade. Sebi is parallelly opening the market for retail participation in higher-risk products, such as portfolio management services and AIFs available to HNI investors. Intermediaries of choice, MFs, appear to inspire Sebi's confidence over professional management of the higher risks involved.
This course offers a more realistic solution to curbing excessive speculation. A
