SEBI's new move to cut retailers participation in F&O!

headstrong007

----- Full-Time ----- Day-Trader
#1
Yesterday, various key decisions taken at Sebi’s board meet to curb retailers participation in F&O.

https://economictimes.indiatimes.co...ofinterest&utm_medium=text&utm_campaign=cppst

*************** ALL MOST ALL TRADERS ARE UNHAPPY WITH IT. THIS THREAD IS FOR DISCUSSION/SHARING THOUGHTS ABOUT THAT MATTERS AS POLITELY AS POSSIBLE AND BEWARE OF FUTURE DEVELOPMENTS *************

I want to share, some inner thoughts which come to mind...

SEBI wants to move F&O volumes to CASH. Who will be most benefited by this? Ans is Govt.
STT is much higher in cash market than F&O. Moreover, in cash, a swing trading for few days will cost much more STT as it is the delivery trade.
Govt just introduced 10% on LTCG tax on shares. Now is that necessary to impose more tax burden to traders in terms of more STT, especially for 90-95% of losing traders? I know good profit makers don't care so much, but they are very less in percentage.

***********
SEBI is thinking two way to shift the volumes:-

1. Idea 1.-> "Individual investors may freely take exposure in the market(cash and derivatives) up to a computed exposure based on their disclosed income as per their Income Tax Return(ITR) over a period of time. "

I think this logic has many a flaw, as in India only a few people under tax bracket. Anyone can make disclosed income is just below the maximum limit to file a compulsory ITR return, say 2.5 lakh. So it is difficult to ban retailers from trading F&O completely. Also, it will be very difficult for RMS for brokers to maintain such individual limits.

In the same way, there will be a maximum limit for the higher income traders group too. How they can limit volumes to few successful pro traders!? Or there will be the different rule for them, like diff income tax slabs.

Anyway, this is very tough to implement, so SEBI has another idea, this is easy to implement and more dangerous.

2. Idea 2. ->
"Accordingly, existing criteria like market wide position limit and median quarter-sigma order size shall be revised upward from current level of INR 300 crore and INR 10 lakh respectively to INR 500 crore and INR 25 lakh respectively. An additional criterion, of average daily ‘deliverable’ value in the cash market of INR 10 Crore, has also been prescribed. "

This is more dangerous as "average daily ‘deliverable’ value in the cash market of INR 10 Crore" will remove many good traders friendly stocks from F&O section like DISH TV etc. SEBI indirectly trying to ban 'positional shorting' also in as many stocks as possible by limiting the F&O list also. Many F&O will fail to meed 10Crore criteria.

https://www.nseindia.com/products/content/equities/equities/eq_security.htm

---------
Another easy but really dangerous for retail traders is bigger lot size of 25lakh. With bigger lot size the chance of wipeout is faster without much experience or time spent in the market. Also, small capital swing traders will try to do intraday(cash) trading which will be more dangerous to them. Everyone know day trading is the most difficult way to make money bcoz of much more short-term noises (at least than few days positional swing trading). So why SEBI is forcing retail traders to trade in intraday cash (as delivery trading attached with much more STT)? Also, in absence of F&O intraday shorting in huge volumes in low liquid stocks can attract huge penalty(due to short delivery) to retail traders! Short delivery can attract huge loss in auction market including the penalty. I really doubt SEBI is really concerned about the risk exposure of retailers money?

If SEBI really wants to protect retailers, then the easiest way is to reduce lot size, this will provide more liquidity to the market too. But it seems the collection of more STT and shifting the volume in cash is the hidden agenda!

If not what else!
Share your views, traders........

This time SEBI is serious,
SEBI already reaches out to the exchanges and large brokerage houses for suggestions. So, don't take it lightly.
 

headstrong007

----- Full-Time ----- Day-Trader
#2
25 lakh contract size means at least 250 units per lot for Nifty @10,000 and 100 units of Bank Nifty @ 25,000. The minimum margin for 1 lot NRML will increase to 2 LAKH, @ current rate.

The risk exposure of retailers money is going to increase heavily as a retailer used to F&O trading will not stop trading unless all the ways are blocked to enter F&O.
 
#3
The Mutual fund industry has always wanted to retail to participate in equity vial mutual funds only. Whats to stop retail from going international. They may not trade here.Many brokers outside do allow trading with limited capital in different markets.
 
Last edited:

praveen98

Well-Known Member
#4
Yesterday, various key decisions taken at Sebi’s board meet to curb retailers participation in F&O.

https://economictimes.indiatimes.co...ofinterest&utm_medium=text&utm_campaign=cppst

*************** ALL MOST ALL TRADERS ARE UNHAPPY WITH IT. THIS THREAD IS FOR DISCUSSION/SHARING THOUGHTS ABOUT THAT MATTERS AS POLITELY AS POSSIBLE AND BEWARE OF FUTURE DEVELOPMENTS *************

I want to share, some inner thoughts which come to mind...

SEBI wants to move F&O volumes to CASH. Who will be most benefited by this? Ans is Govt.
STT is much higher in cash market than F&O. Moreover, in cash, a swing trading for few days will cost much more STT as it is the delivery trade.
Govt just introduced 10% on LTCG tax on shares. Now is that necessary to impose more tax burden to traders in terms of more STT, especially for 90-95% of losing traders? I know good profit makers don't care so much, but they are very less in percentage.

***********
SEBI is thinking two way to shift the volumes:-

1. Idea 1.-> "Individual investors may freely take exposure in the market(cash and derivatives) up to a computed exposure based on their disclosed income as per their Income Tax Return(ITR) over a period of time. "

I think this logic has many a flaw, as in India only a few people under tax bracket. Anyone can make disclosed income is just below the maximum limit to file a compulsory ITR return, say 2.5 lakh. So it is difficult to ban retailers from trading F&O completely. Also, it will be very difficult for RMS for brokers to maintain such individual limits.

In the same way, there will be a maximum limit for the higher income traders group too. How they can limit volumes to few successful pro traders!? Or there will be the different rule for them, like diff income tax slabs.

Anyway, this is very tough to implement, so SEBI has another idea, this is easy to implement and more dangerous.

2. Idea 2. ->
"Accordingly, existing criteria like market wide position limit and median quarter-sigma order size shall be revised upward from current level of INR 300 crore and INR 10 lakh respectively to INR 500 crore and INR 25 lakh respectively. An additional criterion, of average daily ‘deliverable’ value in the cash market of INR 10 Crore, has also been prescribed. "

This is more dangerous as "average daily ‘deliverable’ value in the cash market of INR 10 Crore" will remove many good traders friendly stocks from F&O section like DISH TV etc. SEBI indirectly trying to ban 'positional shorting' also in as many stocks as possible by limiting the F&O list also. Many F&O will fail to meed 10Crore criteria.

https://www.nseindia.com/products/content/equities/equities/eq_security.htm

---------
Another easy but really dangerous for retail traders is bigger lot size of 25lakh. With bigger lot size the chance of wipeout is faster without much experience or time spent in the market. Also, small capital swing traders will try to do intraday(cash) trading which will be more dangerous to them. Everyone know day trading is the most difficult way to make money bcoz of much more short-term noises (at least than few days positional swing trading). So why SEBI is forcing retail traders to trade in intraday cash (as delivery trading attached with much more STT)? Also, in absence of F&O intraday shorting in huge volumes in low liquid stocks can attract huge penalty(due to short delivery) to retail traders! Short delivery can attract huge loss in auction market including the penalty. I really doubt SEBI is really concerned about the risk exposure of retailers money?

If SEBI really wants to protect retailers, then the easiest way is to reduce lot size, this will provide more liquidity to the market too. But it seems the collection of more STT and shifting the volume in cash is the hidden agenda!

If not what else!
Share your views, traders........

This time SEBI is serious,
SEBI already reaches out to the exchanges and large brokerage houses for suggestions. So, don't take it lightly.
Head strong bhai,
I am here by quoting verbatim from pdf on SEBI website ...
"3. Rationalizing and Strengthening the framework of Equity Derivatives Market SEBI Board took note of discussion papers titled ‘Growth and Development of Equity Derivatives Market in India’ and ‘Physical settlement in stock derivatives’, public comments received thereon and also recommendations of the Secondary Market Advisory Committee (SMAC). Proposals approved by the Board to rationalize and strengthen the framework of the equity derivatives market, inter-alia, include the following: I. To facilitate greater alignment of the cash and derivative market, physical settlement for all stock derivatives shall be carried out in a phased and calibrated manner.
Page 4 of 8
II. To update and strengthen the existing entry criteria for introduction of stocks
into the derivative segment in line with the increase in market capitalization
since the last revision of the criteria in 2012. Accordingly, existing criteria like
market wide position limit and median quarter-sigma order size shall be
revised upward from current level of INR 300 crore and INR 10 lakh
respectively to INR 500 crore and INR 25 lakh respectively. An additional
criterion, of average daily ‘deliverable’ value in the cash market of INR 10
Crore, has also been prescribed. The enhanced criteria are to be met for a
continuous period of six months.
III. To begin with, stocks which are currently in derivatives but fail to meet any of
the enhanced criteria, would be physically settled. Such stocks would exit the
derivative segment if they fail to meet any of the enhanced criteria within a
period of one year from the specified date or fail to meet any of the current
existing criteria for a continuous period of three months.
IV. Stocks which are currently in derivatives and meet the enhanced criteria shall
be cash settled. Such stocks if they fail to meet any one of the enhanced
criteria for a continuous period of three months shall move from cash
settlement to physical settlement. After moving to physical settlement if such
stock does not meet any of the current existing criteria for a continuous period
of three months, then it would exit out of derivatives. After a period of one
year from the specified date, only those stocks which meet the enhanced
criteria would remain in derivatives.
V. To reflect global initiatives on product suitability, a framework has been
approved. Individual investors may freely take exposure in the market (cash
and derivatives) upto a computed exposure based on their disclosed income
as per their Income Tax Return(ITR) over a period of time
. For exposure
beyond the computed exposure, the intermediary would be required to
undertake rigorous due diligence and take appropriate documentation from

the investor".
You can also visit the following link and see the pdf under press release "SEBI board meeting"...
https://www.sebi.gov.in/sebiweb/home/HomeAction.do?doListing=yes&sid=6&ssid=23&smid=0
From your posts i can see how worried you are. Please don't worry and don't panic. The way they are trying to regulate F&O participation is no doubt not a right way. But we have to abide by regulation and find a way out of this and find positive things in the latest regulation.
First let us see what can we do to find a way out of this and could trade even after the regulation is in place...
1. This regulation intends to set exposure limits on each individual client...depending upon the income declared in their respective ITR's...So people who are filing returns need not worry...But people who are not filing returns can file past 3 years returns up to 2.5 lakh income per annum(with no tax to be paid) or with more income if intends to pay income tax along with fine for the past three years by engaging a tax consultant who will charge you at most 3 to 5K...So you will get minimum limit by the time regulation is in place.
And second thing is you can increase your exposure limit by giving additional documentation to broker as is mentioned in the pdf under part 3(V) where in i italicized and underlined the lines...So it says you can have additional exposure on the back of some documentation and collateral like post dated cheque,DD or some thing like that( i am assuming this collateral thing.i may be wrong here.)
Do you think the brokerage(the intermediary to collect additional documentation) industry will keep quiet if turnovers dwindle, they will find out someway out to provide leverage otherwise they cannot survive without retail business.

2. I think you are mistaken about idea2. Actually in my opinion they are not speaking about Fut lot size increase but the cash market criteria to include a particular stock in F&O, wrt median quarter sigma order size and deliverable quantity stock value. I think they are good regulation and actually reduce scope for manipulation....and a boon to retail trader.
So the lot size will be the same...no need to worry about the lot size. And i know even if Dish TV is excluded HS 007 will find and successfully trade some other instrument with better volatility....By the way HS bhai, average deliverable stock value of Dish tv for the past one year is around 14.72 crores...So it can not be excluded from F&O on that criteria....

All the Very Best,
Be cheerful,
Happy trading...:D
 
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marimuthu13

Well-Known Member
#5
Head strong bhai,
I am here by quoting verbatim from pdf on SEBI website ...
"3. Rationalizing and Strengthening the framework of Equity Derivatives Market SEBI Board took note of discussion papers titled ‘Growth and Development of Equity Derivatives Market in India’ and ‘Physical settlement in stock derivatives’, public comments received thereon and also recommendations of the Secondary Market Advisory Committee (SMAC). Proposals approved by the Board to rationalize and strengthen the framework of the equity derivatives market, inter-alia, include the following: I. To facilitate greater alignment of the cash and derivative market, physical settlement for all stock derivatives shall be carried out in a phased and calibrated manner.
Page 4 of 8
II. To update and strengthen the existing entry criteria for introduction of stocks
into the derivative segment in line with the increase in market capitalization
since the last revision of the criteria in 2012. Accordingly, existing criteria like
market wide position limit and median quarter-sigma order size shall be
revised upward from current level of INR 300 crore and INR 10 lakh
respectively to INR 500 crore and INR 25 lakh respectively. An additional
criterion, of average daily ‘deliverable’ value in the cash market of INR 10
Crore, has also been prescribed. The enhanced criteria are to be met for a
continuous period of six months.
III. To begin with, stocks which are currently in derivatives but fail to meet any of
the enhanced criteria, would be physically settled. Such stocks would exit the
derivative segment if they fail to meet any of the enhanced criteria within a
period of one year from the specified date or fail to meet any of the current
existing criteria for a continuous period of three months.
IV. Stocks which are currently in derivatives and meet the enhanced criteria shall
be cash settled. Such stocks if they fail to meet any one of the enhanced
criteria for a continuous period of three months shall move from cash
settlement to physical settlement. After moving to physical settlement if such
stock does not meet any of the current existing criteria for a continuous period
of three months, then it would exit out of derivatives. After a period of one
year from the specified date, only those stocks which meet the enhanced
criteria would remain in derivatives.
V. To reflect global initiatives on product suitability, a framework has been
approved. Individual investors may freely take exposure in the market (cash
and derivatives) upto a computed exposure based on their disclosed income
as per their Income Tax Return(ITR) over a period of time
. For exposure
beyond the computed exposure, the intermediary would be required to
undertake rigorous due diligence and take appropriate documentation from

the investor".
You can also visit the following link and see the pdf under press release "SEBI board meeting"...
https://www.sebi.gov.in/sebiweb/home/HomeAction.do?doListing=yes&sid=6&ssid=23&smid=0
From your posts i can see how worried you are. Please don't worry and don't panic. The way they are trying to regulate F&O participation is no doubt not a right way. But we have to abide by regulation and find a way out of this and find positive things in the latest regulation.
First let us see what can we do to find a way out of this and could trade even after the regulation is in place...
1. This regulation intends to set exposure limits on each individual client...depending upon the income declared in their respective ITR's...So people who are filing returns need not worry...But people who are not filing returns can file past 3 years returns up to 2.5 lakh income per annum(with no tax to be paid) or with more income if intends to pay income tax along with fine for the past three years by engaging a tax consultant who will charge you at most 3 to 5K...So you will get minimum limit by the time regulation is in place.
And second thing is you can increase your exposure limit by giving additional documentation to broker as is mentioned in the pdf under part 3(V) where in i italicized and underlined the lines...So it says you can have additional exposure on the back of some documentation and collateral like post dated cheque,DD or some thing like that( i am assuming this collateral thing.i may be wrong here.)
Do you think the brokerage(the intermediary to collect additional documentation) industry will keep quiet if turnovers dwindle, they will find out someway out to provide leverage otherwise they cannot survive without retail business.

2. I think you are mistaken about idea2. Actually in my opinion they are not speaking about Fut lot size increase but the cash market criteria to include a particular stock in F&O, wrt median quarter sigma order size and deliverable quantity stock value. I think they are good regulation and actually reduce scope for manipulation....and a boon to retail trader.
So the lot size will be the same...no need to worry about the lot size. And i know even if Dish TV is excluded HS 007 will find and successfully trade some other instrument with better volatility....By the way HS bhai, average deliverable stock value of Dish tv for the past one year is around 14.72 crores...So it can not be excluded from F&O on that criteria....

All the Very Best,
Be cheerful,
Happy trading...:D
i second your thoughts..people are very panic in twitter's about ITR of last 3 years etc etc.. I am just wondering how come they are trading in derivatives segment , that is treated as business but not filling any ITR........what was the source of fund to trading in derivatives?? Or is it tax evaded money ??
 

headstrong007

----- Full-Time ----- Day-Trader
#6
@praveen, my idea 2 is absolutely correct, previously several times such news was published like below.

https://www.moneycontrol.com/news/b...o-increase-fo-lot-size-is-flawed-2487023.html

SEBI had earlier increased the minimum lot size from Rs 2 lakh per contract to the current Rs 5 lakh per contract. But that did not seem to be good enough to cool individual traders’ enthusiasm.
This time around, SEBI plans to increase it further to Rs 10 lakh per contract. - It was published in Jan, there was the long discussion about ill effect of it in CNBC TV 18 then. Not SEBI proposed 25 lakh. U can see it is a continuous process to cut the retailer participation from F&O. SEBI clearly said this multiple times discussed on CNBC like the channel.

*********
I don't trade on DISH TV, I am Index F&O trader. But one of my trader friend frequently traded on that script expressed concerned about it to me. I just saw past 15 days data to calculate roughly, I saw last 15 days volumes only. Maybe DISH TV can stay in F&O but in down market average delivery position just decrease with price depreciation and DISH TV 5 years not looked. Who knows the future. It is hard to find the alternative when some specialize in a particular instrument and used to trading it for years.

I expect a big protest from NSE and from many discount brokers.
 

headstrong007

----- Full-Time ----- Day-Trader
#7

headstrong007

----- Full-Time ----- Day-Trader
#8
i second your thoughts..people are very panic in twitter's about ITR of last 3 years etc etc.. I am just wondering how come they are trading in derivatives segment , that is treated as business but not filling any ITR........what was the source of fund to trading in derivatives?? Or is it tax evaded money ??
No, no most people are trading in options segment with 10,000 to 25,000 capital. U know the Indian Trading League, that was based on this after a lot of research made in the background. U knew how popular was it. Sebi also stopped it, in the name of investors protection. :D

Yes trading is business, so Govt must treat it like other business.
On what business a starter needs to show his income proof when he has enough capital to start with? Think simply, if anyone wants to open a shop or any type of business with his personal savings, then no one is forcing them to show previous income. So why in F&O trading!

----------
Even if someone wants to spend spare money/pocket money for some enjoyment/gambling like trading, why Sebi want to stop them? It's their hard earned money, let them decide how they want to use them. Trading is not at least illegal activity. Why Govt. is not banning Horse Races, Lottery first?
 

headstrong007

----- Full-Time ----- Day-Trader
#9
Some, interesting facts about F&O:-

87 per cent of derivatives volume comes from options segment
and within options almost 93 per cent volume is in index options.
Stock options accounts for just eight per cent.

On the futures segment, the story is different where 77 per cent of futures trades are on stock futures as share of index futures have come down from close to 40 per cent in FY14 to 22 per cent currently.

So, the volume of Index futures is already come down heavily due to heavy taxes in futures compared to options. If there is more strict action like this, it will hurt liquidity for sure.
 

TraderGYO

Well-Known Member
#10
1. This regulation intends to set exposure limits on each individual client...depending upon the income declared in their respective ITR's...So people who are filing returns need not worry...But people who are not filing returns can file past 3 years returns up to 2.5 lakh income per annum(with no tax to be paid) or with more income if intends to pay income tax along with fine for the past three years by engaging a tax consultant who will charge you at most 3 to 5K...So you will get minimum limit by the time regulation is in place.
Is not lying on ITR considered a crime?
And if SEBI really wants to average ITRs of last 3 years why not announce that 3 years in advanced?
How can a young newcomer individual show 3 ITRs of the past ?
 
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