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Sebi chair Buch cautions investors against heavy F&O bets


New Delhi: Securities and Exchange Board of India (Sebi) chairman Madhabi Puri Buch on Monday warned retail traders against heavy betting in the derivatives market.

Investors should focus instead on the long-term prospects offered by equity markets, said Buch, speaking at the launch of the Investor Risk Reduction Access (IRRA) platform.

Buch recalled a study conducted by Sebi last year in which nine out of ten investors showed money in the derivatives market. Trading on a short-term basis could lead to situations where the investors incur losses on a weekly basis, she said.

The Sebi chairman said that if investors take a long-term view, there is a possibility of investment calls going wrong. “(In long-term investments) there is a very good chance that you would be creating wealth over a continuous period of time that would exceed the rate of inflation in the economy and that you would receive a real rate of return on your investment over a long period. term,” she said.

IRRA is a platform created by exchanges to help investors to exit, close or cancel their existing positions in the derivatives market in case of any technical fault at the broker’s end. In recent years, many brokers have seen glitches in their online applications, especially closer to expiration when volumes are higher. In such a situation, IRRA would help investors ensure that their positions are settled gradually. The platform is intended to reduce the potential risks of retail traders in the event of glitches and is not intended to take new positions, Buch added.

In the past, there have been cases where brokers have forcibly closed the positions of their client glitches to ensure that margin calls are not initiated. Buch said that only the individual investor should take calls on his or her positions and not on any other entities.

Investors must have control over their assets and positions and no one else should have unauthorized access to those assets or positions, she said.

Buch also highlighted the new collaborative approach being adopted by Sebi, where stakeholders are given an opportunity to come up with industry standards. With this approach, Sebi enacts the macro rules and industry bodies will be consulted to make more detailed compliance requirements for such rules.

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Updated: 20 November 2023, 05:35 PM IST

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