SEBI Chairperson Cautions Investors Against Heavy F&O Bets
Securities and Exchange Board of India (SEBI) chairperson, Madhabi Puri Buch, delivered a warning to retail traders regarding their participation in the derivatives market. Speaking at the launch of the Investor Risk Reduction Access (IRRA) platform, Buch emphasized the importance of focusing on long-term prospects offered by equity markets instead.
The Risk of Short-term Trading
Buch referred to a study conducted by SEBI the previous year, which revealed that nine out of ten investors incurred losses in the derivatives market. She emphasized that trading on a short-term basis can result in weekly losses for investors, urging them to adopt a long-term view.
By adopting a long-term investment strategy, investors will reduce the possibility of wrong investment calls. Buch emphasized that long-term investments have the potential to generate wealth over sustained periods of time, surpassing the inflation rate and ensuring real return on investments.
Introducing the Investor Risk Reduction Access (IRRA) Platform
The IRRA platform was created by exchanges to assist investors with their holdings in the derivatives market in the event of technical glitches at the broker’s end. Over recent years, online applications of many brokers have experienced glitches, especially as the expiration date approaches and trading volumes surge. The IRRA platform ensures that investors’ positions are settled within a specified timeframe, minimizing potential risks for retail traders.
It’s essential to note that the platform is not intended for taking fresh positions; its primary purpose is to facilitate the resolution of existing positions in cases involving glitches.
Investor Autonomy and Asset Control
Buch highlighted the importance of investors regaining control over their assets and positions. In the past, there have been instances where brokers forcibly closed the positions of their clients following glitches to prevent margin calls. Buch emphasized that only individual investors should make decisions regarding their positions, barring any interference from external entities.
Investors should have exclusive control over their assets and positions, with no unauthorized access granted to any other parties.
SEBI’s Collaborative Approach
Additionally, Buch shed light on SEBI’s collaborative approach, allowing stakeholders to contribute to the establishment of industry standards. Under this approach, SEBI establishes the macro rules, while industry bodies are consulted to develop finer compliance requirements in accordance with the rules.
By encouraging industry collaboration, SEBI aims to ensure that the regulatory framework is robust and reflective of the industry’s needs while maintaining compliance.
In conclusion, SEBI Chairperson Madhabi Puri Buch’s caution against heavy betting in the derivatives market emphasizes the importance of a long-term investment strategy. The introduction of the IRRA platform assists investors in managing their derivative holdings, reducing risks in case of technical glitches. Through investor autonomy and the collaborative approach taken by SEBI, the aim is to promote a secure and compliant investing environment.
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