SEBI Updates : He is the senior leader of the Congress and making headlines on Tuesday, September 24, demanded greater transparency by the capital market regulator, SEBI, into the futures and options segment trading done by it. Gandhi sought SEBI to reveal names of the “big players” who were raking in money from this segment at the cost of small retail investors. The remarks came at a time when the war of words on policy issues was believed to be raging between the Congress party and SEBI, with opposition parties targetting the chairperson of SEBI, Madhabi Puri Buch, with charges of bribery.
The Congress MP took to X, hitherto known as Twitter, and said small investors were being ‘axed.’ End. He mentioned that unregulated F&O trading has become 45 times in five years and that 90% small investors have suffered heavy losses during this period. “SEBI must disclose names of so-called ‘Big Players’ killing at their expense,” Gandhi requested more accountability and transparency from the regulator.
Table of Contents
Unbridled Growth of F&O Trading and Losses to Small Investors
Rahul Gandhi’s statements are on the day SEBI has come up with a comprehensive study of the state of F&O trading in India. Findings paint a worrying picture for small retail investors. 91% individual traders in the F&O segment lost money during the financial year 2024 (FY24), which adds up to 73 lakh traders, as per SEBI’s recent analysis. On average, each of these traders lost ₹1.2 lakh. More threatening is the fact that an astounding 93% of over a crore of individual F&O traders have suffered an average loss of ₹2 lakh per trader in the three-year period between FY22 and FY24, inclusive of transaction costs.
Now, that loss accumulation is gargantuan. The aggregate such losses of these traders add up to more than ₹1.8 lakh crore over the last three years. In fact, the net loss for individual traders in FY24 alone amounts to about ₹75,000 crore. The finer print does a better job of relaying an even scarier statistic: that the highest 3.5% of the loss-making traders-about 4 lakh in all-accounted for an average loss of about ₹28 lakh per person during this period.
SEBI : Boom in F&O Trading
F&O trading involves the trading of future and options or contracts whose value is derived from an underlying asset, such as equities or commodities. Though the F&O market has immense scope for possible returns, it incurs higher risk. Interestingly enough, the segment is growing at a rapid pace in India of late, particularly within the retail investor category.
Another factor giving rise to F&O trading is the fact that now even sophisticated trading platforms make it relatively easier for investors to trade at high frequency. Overall, lower transaction costs have made it cheaper for the retail investor to tap into the market and, at the same time, increases the number of small traders flocking to the highly volatile F&O segment.
Where retail investors now account for nearly 30% of turnover in the F&O market, they represent a staggering 99.8% of the total number of traders in that market. This large number has not helped the majority of these traders who have incurred losses, thus revealing how perilous this can be for individual investors unfamiliar with the intricacies and risk-laden nature of these financial instruments.
Rahul Gandhi’s Demand
It is in this context that Rahul Gandhi has questioned SEBI. The SEBI was criticized by Rahul Gandhi who points out that 90% of small investors have incurred heavy losses in the F&O market. He wonders why SEBI could not do enough to curb the menace of fast money operators. Gandhi appealed to the regulator to identify the “big players” that have been making money over time in this space by always positioning themselves better at the tail end.
While this is a call for transparency and stands in sync with the larger criticism levelled at SEBI and its leadership by the Congress party, lately, corruption and mismanagement charges have been hurled against SEBI chairman Madhabi Puri Buch. According to opposition members, the regulatory entity does not have adequate mechanisms to shield small investors from the inherent risks of trading in the F&O market.
The SEBI Study: Major Findings
Research done by SEBI on trading in F&O has been quite fruitful for a poor requirement of investor education as well as better risk management strategies in India’s capital markets. The report has shown that around 7.2% of the traders have made some profit over the last three years while a majority of the individual traders have suffered heavy losses. Besides, it was also identified that only 1% of individual traders were profitable at ₹1 lakh, accounting for transaction costs.
One take away from the research is that even though the number of retail traders in the F&O segment has almost doubled within just two years-from about 51 lakh in FY22 to approximately 96 lakh in FY24-the proportion of loss-making traders has remained stubbornly high. It seems that rapidly exploding growth of F&O trading activity remains ahead of the curve for many retail investors in terms of comprehensive risk understanding and management.
Another significant findings of SEBI’s research are that only an insignificant 7.2% of the traders have been found to be consistently profitable in their returns. A small group of such size might only be well-experienced and sophisticated and thus enjoy the reputation for higher-grade equipment and strategies, entitling them to having a margin over the less informed retail investors. It was also indicative of questions raised on fairness apart from the suspicion of market manipulation given that the losses registered by small investors far surpassed the gains of this small number.
SEBI’s Action and Future Strategy
SEBI has reacted in agreement that it is high time that more investor education and better risk management practices are in order. The central point of concern that SEBI brought to light is the tremendous growth rate of F&O among retail investors which demands measures of protecting these traders from risks associated with trading.
One concern the regulator has is that a large number of retail investors have entered into this market without any appreciation of the complexities involved in these financial products. SEBI further adds that although technological improvements along with low transaction costs have made it easier for retail investors to access the market, it does not give many traders a false sense of security indulging in a trading style, which is more risk-taking than the risk the buyer or seller can afford.
In this regard, SEBI has vowed to roll out new initiatives at the investor education front for enhancing the financial literacy of the common man and facilitating better decisions by retail investors. The new regulations are also being contemplated, enhancing the risk disclosure obligations and severely curbing certain high-risk trading strategies in the F&O segment.
Conclusion
The F&O trading business in India has been a double-edged sword, for on one hand, it has opened up new avenues for retail investors to engage with the market: