Trading in derivatives? Get ready to show your grades

livemint.com:

derivates? Take an exam. Also, prove your networth is high enough to stomach the risks.

That, in essence, is what a possible entry barrier to derivates trading could look like as regulatory concerns continue to play out over the risks of retail investors trading in futures and options contracts. Two frameworks suggested by stock exchanges to markets regulator Sebi (Securities and Exchange Board of India) for consideration by a proposed committee are understanding the product and its risks, and trading in proportion to one’s networth (measuring a person’s wealth) through KYC (know your customer) norms at the broker’s end.

A proposed regulatory committee comprising officials of Sebi and stock exchanges could consider these two aspects, according to four market experts aware of the matter. Although the timeline for setting up the panel or its composition is still unclear as the country heads for Lok Sabha polls, the rise in retail and proprietary speculation across derivatives such as equities, commodities and currencies, until recently, has drawn regulatory concern.

“Under the products framework, an investor should have full knowledge of the product she is trading in," said one of the people cited above on condition of anonymity. “Since index options (Nifty and Bank Nifty contracts) are the most popular product among retail investors, it is proposed that they would have to clear mandatory exams on options every year to be able to trade in derivatives." He added that under the networth criteria, the trading exposure would be based on a person’s wealth.