FM Raises Concerns over Retail Participation in Risky F&O Transactions, Cautioning Against 'Unchecked Explosion' Impacting Household Finances

Flags have been raised on the derivative play by retail investors since then, by many concerned stakeholders, including by Sebi Chairperson Madhabi Puri Buch.Sitharaman also appealed to the BSE to work closely with markets regulator Sebi to help investor confidence by stringent compliances and robust regulatory standards.The BSE and its larger rival NSE should mitigate systemic risk and ensure market stability, she added.

An ''unchecked explosion'' by retail investors in the riskier futures and options (F&O) segment can come to hit household finances in the future, Union Finance Minister Nirmala Sitharaman warned on Tuesday.

''Any unchecked explosion retail trading in F&O can create future challenges not just for the markets (but) for investor sentiment and also for household finances,'' she said at an event at the BSE here.

''Household finances have made a generational shift. We want to safeguard them,'' she said, addressing the 'Viksit Bharat 2047' event here. Speaking about the household finances, Sitharaman attacked the Opposition for having a limited view of the topic, and pointed out that while the investments in fixed deposits and post offices may have reduced, which is leading to the Opposition parties' ire the same money has been funnelled into the capital markets.

It can be noted that a few months ago, a study undertaken by capital markets regulator Sebi had revealed that 9 of 10 retail investors suffer a loss on their bets in the F&O market. Flags have been raised on the derivative play by retail investors since then, by many concerned stakeholders, including by Sebi Chairperson Madhabi Puri Buch.

Sitharaman also appealed to the BSE to work closely with markets regulator Sebi to help investor confidence by stringent compliances and robust regulatory standards.

The BSE and its larger rival NSE should mitigate systemic risk and ensure market stability, she added. Sitharaman said the financial sector regulator need to adopt a ''soft touch'' approach which focuses on public consultations before writing a regulation and also asked them to be open to review a regulation after some statute has been notified.

Meanwhile, Sitharaman said the domestic flows have become a ''counterbalancing element'' to the ''whimsical'' play by foreign portfolio investors, she said.

Sitharaman said an additional USD 20 billion of overseas flows will be received because of the inclusion of the country in the JP Morgan bond indices.

Amid the changes in the market volatility indicators, which have led to speculation over whether the market is suspecting a surprise in the election outcomes, Sitharaman said Modi will form a government for the third term and deliver a stable government which will work with the focus on minimum government and maximum governance.

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