Sebi Introduces Attractive Risk Disclosure for Equity Traders.
In a move to empower investors and foster informed decision-making, the Securities and Exchange Board of India (Sebi) has unveiled an alluring new rule on risk disclosure for individual traders in the equity futures and options (F&O) segment.
Effective July 1, 2023, stock brokers are now required to showcase captivating risk disclosures on their websites, prompted by significant findings from a Sebi study shedding light on individual trading in the equity F&O domain.
Factors prompting the new disclosure
The impetus behind this proactive move was the study’s eye-opening revelations. In fiscal year 2022, the number of unique individual traders trading through the top 10 brokers skyrocketed by over 500 per cent compared to FY19, reaching an impressive 4.52 million. However, a staggering 89 per cent of these traders incurred losses, averaging Rs. 1.1 lakh, while only 11 per cent managed to make a profit, averaging Rs. 1.5 lakh. Furthermore, the study found that the top 1 per cent and 5 per cent of active profit-makers accounted for an astonishing 51 per cent and 75 per cent of the total net profit, respectively.
A Compelling Display of Disclosures
- To ensure traders are fully informed about the risks involved, these captivating risk disclosures must be prominently displayed on the stockbrokers’ websites, covering at least 50 per cent of the screen. Upon login, clients will be prompted to carefully read and acknowledge the disclosures before proceeding.
- Qualified stockbrokers (QSBs) are also required to maintain their clients’ Profit and Loss (P&L) data in a specified format provided by Sebi in the circular, retaining the data for a minimum of five years. Sebi has further directed stock exchanges and depositories to disseminate the risk disclosures on their websites, promoting transparency and accountability.
Further more, India’s market regulator is set to propose a risk-mitigating measure for retail investors amidst soaring stock prices and increased interest in equity derivatives trading. The Securities and Exchange Board of India (SEBI) aims to protect smaller investors from potential losses caused by market volatility.
SEBI is reportedly in confidential discussions to introduce measures that monitor and regulate “disproportionate trading” to safeguard retail investors. These measures would link the value of futures and options trades to investors’ income and net worth. Sources with knowledge of the matter, who wished to remain anonymous due to lack of authorization to speak to the media, revealed this information. SEBI has yet to respond to media inquiries on the subject.
According to the latest data, India witnessed a total of 5.56 billion derivatives contracts traded as of June, with options trading constituting a significant 98% of these contracts. The regulator’s move aims to strike a balance and provide a safer trading environment for retail investors amid the surging interest in equity derivatives trading.
This exciting new initiative aims to empower traders with vital knowledge, elevating their understanding of potential risks and rewards, and fostering more informed and confident trading decisions. Investors, get ready to embrace the power of knowledge and seize the opportunities that lie ahead!”
Source : https://www.sebi.gov.in/
