SEBI aims to safeguard retail investors through curbs on derivatives trading

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stock prices reach record highs, attracting greater interest from retail investors. The regulator is concerned that smaller investors may incur losses on derivatives if market volatility increases. Data from the Securities and Exchange Board of India (SEBI) reveals a significant surge in retail investor participation in the equity derivatives market, which has increased by 500% over the past three years until March.

A SEBI study conducted in January found that nine out of ten individual traders, predominantly in their 30s, experienced losses in the previous fiscal year, with average losses amounting to approximately 110,000 Indian rupees ($1,300). In the past, SEBI has required brokers to prominently disclose the risks associated with trading in derivatives on their websites. However, the regulatory body is now contemplating more stringent actions.

Sources reveal that SEBI is currently in discussions to implement measures aimed at monitoring and regulating "disproportionate trading" in order to protect retail investors. These measures would involve linking the value of futures and options trades to the investors' income and net worth. The sources preferred to remain anonymous as they are not authorized to speak to the media.

SEBI has not yet responded to a media inquiry sent via email. "SEBI is examining whether stock brokers can be made responsible for reporting net worth and income of individual traders to exchanges," one source said. Determinations would be based on information disclosed in tax returns.