SEBI Discussion Paper - My View | Stocks and Commodities

July 31, 2017
Time: 8 am

SEBI Discussion Paper - My View:

1. SEBI has released a discussion paper on Growth and Development of Equity Derivatives in India.
2. The link is http://www.sebi.gov.in/reports/reports/jul-2017/discussion-paper-on-growth-and-development-of-equity-derivative-market-in-india_35295.html
3. First, some facts. India and South Korea are the two countries where Futures and Options trade is very popular, more than many developed countries.
4. One reason, may be, the lack of other avenues for gamling or speculation.
5. There are no Casinos in India who want to gamble.
6. Second, the statistic shows, retial people uniformly lose in F&O.
7. A leading brokerage, Zerodha, has a program called 60 day challenge, where if I a trader trades for 60 trading sessions, he will get refund of brokerage, as long as he stauys profitable.
8. Even if a trader makes one rupee profit out of one crore capital, still gets refund of brokerage.
9. Yet less than 1% of the people have won that challenge.
10. That too only one or two times winners, less than 0.1% of the traders only made consistent profit for more than a year, i.e. 4 or more times winners.
11. This shows very clearly that retails people use F&O more for speculation than hedging and more than 99% of retail people lose money in F&O alsways.
12. Now SEBI thinks that this is due to misselling of the products by brokers whereas the truth is that retail people enter F&O with very little money and they could not stand the small volatility, so margin Call comes and they lose their entire capital.
13. Another thing is SLB program. (SLB - Stock Lending and Borrowing). This program has not taken off in India.
14. That is mainly due to the availability of short selling in Stock Futures where you have two advantages.
15. One, you can (short) sell at a higher price as Future always trade (only in exceptional cases, Future trade at discount) at a premium.
16. Second, you do not have to pay any interest, while you need to pay if you borrow the shares to deliver under SLB.
17. So in my opinion, SEBI should ban Stock futures.
18. F&O should restricted to only Indices not stocks.
19. Anyway about 80% of the volume is happening in Index Futures and Index Options.
20. Recently, one of my frieds went long in ITC, he loast Rs 1.25 lakhs per contract in just two trading sessions.
21. On the other hand, his loss would have been less than Rs 70000, if he has gone long in Nifty and had the Nifty fell 10%.
22. Remember Nifty fell 10% only one time in History of Indian stock market and if Nifty falls by 10% exchange will be closed for the day.
23. The next thing SEBI has to do is to ban the retail people from entering F&O who have less money and less knowledge.
24. Every retail person who is entering the F&O segment should pass NISM Exam on Derivatives trade.
25. A retial person should have a minimum networth of Rs 25 Lakhs and minimum annual income of more than Rs 10 Lakh in order to trade in F&O.
26. I get calls from retail people saying 'Sir, please help me to make money in stock markets as I have lost huge money' when I ask them about their Capital, everybody say a figure between Rs 50000 to Rs 100000.
27. Many intermediaries divert these people for Option buying thereby eroding their remaining Capital also.
28. Can you imagine Bank Nifty 22500 Put option is trading at Rs 16 when Bank Nifty future is trading around 25000?
29. Does the Option buyer at this strike really knows the risk and reward?
30. In my opinion, the answer is "NO". A retailer comes with Rs 1000 or Rs 2000 ask the intermediaries 'how to make money?' what else the intermediary can do?
31. So, my opinion  

• No F&O for stocks, F&O is only for Indices.
• Retail people must pass NISM Exam in order to trade in F&O.
• Retail people must have a minimum networth and minimum annual income to tarde in F&O.