Sobering Reality: Risks of Derivative Trading Highlighted by Sebi Chairperson

Sebi Chairperson Madhabi Puri Buch has raised serious concerns about the rising trend of people borrowing money to engage in speculative derivative trading. Highlighting the financial risks and broader economic impacts, Buch emphasized the need for regulatory vigilance. An expert group will study the futures and options market to provide recommendations.

Sebi Chairperson Madhabi Puri Buch expressed serious apprehensions over the alarming surge in borrowing for speculative trading in derivatives, hinting at adverse macroeconomic consequences. She described the practice as financially perilous for many retail investors, who often face substantial losses, highlighting Sebi's research that indicates a majority losing out in such trades.

Buch criticized the diversion of household savings into unproductive, speculative activities that are not contributing to economic capital formation. She noted trades mainly occur near expiry dates without hedging, underlining their speculative nature. The issue, according to Buch, spans beyond investor protection and includes systemic risks to the market's ecosystem.

The regulator has established an expert committee to scrutinize the futures and options market segment comprehensively, with forthcoming public consultations. Buch also announced stricter norms to manage the entry and exit of individual stocks within the derivatives segment, aiming to sustain a robust and regulated securities market.

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