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

[headstrong007]

It will be too late if we wait for the actual details to be revealed. We have to build protest quickly.

I was waiting for any broker with large enough client base to file a petition in Change.org. So that it is easy to large people to sign in that petition. Previously discount brokers filed such petition against STT. But, this time as they may be scared to go against Govt & SEBI's joint plan to attract more tax.

So we have built the protest ourself as quickly as possible.

Following methods can help:-

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1. Individual protest.
I have already send 2 Email to Sebi using the following link:-
One in the main office, E-mail : [email protected]
Another copy send to my zonal office using following link:-
https://www.sebi.gov.in/contact-us.html

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2. Individual protest.
SEBI can ignore the electronic email. But, a letter in physical format from lots of investors can give them a headache! So, I request all members to send an individual letter to below office. Fill up the office with lots of papers.

Head Office (HO)
SEBI Bhavan BKC
Address :
Plot No.C4-A, 'G' Block
Bandra-Kurla Complex, Bandra (East),
Mumbai - 400051, Maharashtra
Tel : +91-22-26449000 / 40459000
Fax : +91-22-26449019-22 / 40459019-22
They may ignore our email, so I request to every member to post physical letter, a better option is registry letter.

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3. Joint protest using signed petition using change.org.

Benefits of having suc2h thread is we already got various angles, valid points, legal points through discussion. Now TJ members who are good in literature make a draft of the petition and post it here.
We will discuss here it and to make it best. Then just put it Change.org, we will sign it. We will post the link of the petition in the brokers' thread and tell every trader we know, to attract as many investors as possible. Please, someone, take the initiative.

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4. Write individually directly to Govt of India.

Express your concerns also directly as a suggestion to,
Government Of India.
Department Of Administrative Reforms & Public Grievances

Centralized Public Grievance Redress And Monitoring System (CPGRAMS)
https://pgportal.gov.in/

5. Make individual protest using, Narendra Modi app.
Express your concern only as an investor or trader. Don't be political (then u'll be ignored easily)
Say u have voted for current Govt. Expect quick action to protect investors and traders. This may help.

I have already used 1. 2. & 4 from above. Use as much as possible ways to lodge the protest.
Happy Trading.

 

[lemondew]

A very good suggestion and I think if someone wants to draft. The content can be discussed here and then we all can support it.

Someone can draft a CHANGE.COM petition and then we all contribute our ideas to it to give it a final shape, Also put our views in Narendra Modi app and make our concerns heard and felt. Request our brokers to send their representations also .

Use a proper language and put forward logical arguments and reasoning..not criticism,hate posts,let us present the case on financial and economic reasoning and not get into congress-BJP politics. Criticising the decision amoungst ourselves will not have any effect. Brokers and Stock Exchanges will not be of much help as they are scared to go against SEBI.

Smart_trade

 

[madhusudhan_r02]

English is not my strength. I have tried to draft few points, that I could think of. Kindly edit/ correct/ add/ delete and make it suitable. Thanks.

Dear Decision makers,

This is in reference to the board meeting held by SEBI on 28th March, 2018.

Point of concern :
As quoted under point 3.V (Page 4) of the press release https://www.sebi.gov.in/media/press-releases/mar-2018/sebi-board-meeting_38473.html , SEBI plans to limit retail investors/traders exposure in the stock market through a product suitability framework.

Point 3.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."

As retail traders/investors/individuals/citizens we would like to put forward our concern to the relevant authority.
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1.There are many full time retail traders whose living is based on income from the stock market. These traders provide liquidity to the market, which helps in price discovery. These traders also act as counter-party for risk, in case of hedging. Traders help in the markets being efficient.
2.Traders pay various transaction taxes, STT, LTCG to the Government, which are being used for the welfare schemes
3.There are many indirect beneficiaries dependent on retail participation like exchanges, brokers, data providers, hardware, software providers etc
4.Indian stock markets are shallow. Less than 3% of the Indians invest/trade, as compared to global level, this is very low and the current decision discourages investments in an environment where bank FDs and other investments means earn less than the inflation percentage.
5.Like any other skill trading/ investing requires learning and with this decision any hands on learning would be restricted.
6.Currently the transactions takes place through authorized exchanges, hence taxes are accounted to. But, if the retail participation is restricted, then it may encourage dabba trading in un-authorised exchanges leading to black money generation.
7.Entrepreneur/ self-employment generated through stock market would be limited.
8.Derivatives markets/ cash turnover as presented by SEBI, may not project a real picture, as the nominal value of options is used for calculation. Most of the stock derivatives have very high spread and low liquidity.
9.At global levels, the product suitability framework is based on knowledge of the investor/certification and not on income basis. It would be good to follow the global standards.
10.This could impact govt's decision of enhancing the commodity markets(to help in price discovery) as well

We would request SEBI and the decision makers to implement a framework where the trader is educated or needs some certification, instead of limiting it based on income. This could lead to income inequality where in rich would have access to better exposure and poor would be left poor, even though they have sufficient knowledge.

Though the product suitability framework is a right step, it should not be implemented in a wrong way.

Hope the concerns are heard.

 

[Tejas Khoday]

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.

Yeah, it's in their interest of course. But you'll have to note that the participation via mutual funds is already much larger than via direct capital markets trading/investing. They wouldn't need to disrupt this space. In fact, many of the fund houses have brokerage divisions which actually make more money than the mutual fund. The revenue pool of the brokerage industry is larger than the mutual fund industry.

 

[Tejas Khoday]

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...

Careful thoughts, good reply.

 

[Tejas Khoday]

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

I will not be surprised if nobody protests.

 

[vikas2131]

Careful thoughts, good reply.

I was thinking the same thing... if somebody has 5 lakhs in their trading account, i doubt broker will deny that person leverage. it is people who are trading with 40k-50k and using intraday leverage, it is those people who wont be allowed to do that anymore..

 

[Tejas Khoday]

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.

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!

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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?

Very good points. I really wish the brokers who represented the industry made these observations before our regulator. With regards to horse races & lotteries - SEBI does not regulate it directly. I'm sure that if they did, it would be banned in 1992 when SEBI was formed.

 

[Tejas Khoday]

I was thinking the same thing... if somebody has 5 lakhs in their trading account, i doubt broker will deny that person leverage. it is people who are trading with 40k-50k and using intraday leverage, it is those people who wont be allowed to do that anymore..

Not necessarily true. Intraday leverage is provided to traders of both categories you mentioned. Leverage is a function of how much capital there is. A 50,000 guy will get 5 lacs and a 5 lacs guy will get 50 lacs. It's all about managing the zeroes & decimals.

 

[madhusudhan_r02]

When SEBI talks about exposure, do they mean the margin/leverage or the total position a trader can hold at any point?