Business Standard

Don’t miss the latest developments in business and finance.

Sebi wants more safeguards for F&O trades to shield small investors

Is against dictating IPO pricing; calls for greater disclosures and transparency

Bs_logosebi
Shares of new-age companies listed over the past one year have crashed as much as 70 per cent, stoking a debate on whether Sebi should step in
Samie Modak Mumbai
4 min read Last Updated : Sep 13 2022 | 9:05 PM IST
The Securities and Exchange Board of India (Sebi) is considering further safeguards to shield small investors from the risky derivatives market. Since the future and options (F&O) segment accounts for a bulk of trading volume, there are concerns around gullible investors dealing in this segment without fully understanding the risk.

Speaking at the 19th Annual Capital Markets Conference organised by industry body Federation of Indian Chambers of Commerce & Industry, Sebi Chair Madhabi Puri Buch said the regulator doesn’t believe in restricting retail entry into the F&O segment, but wants to reinforce disclosures around dealing in the F&O segment.

“I don’t think we want to restrict anyone. Having said that, Sebi is evaluating the form and manner of information that needs to be disclosed to the public desirous of participating in the F&O market. After that they should make up their own mind. Just like in the case of initial public offerings (IPOs), there are specific risk factors. Participating in the F&O market has its own peculiar set of risk factors,” she said, adding the Sebi will take a data-driven approach.

Her comments come amid growing debate on whether small investors should be kept away from the derivatives segment.

Exchange officials said they are working on a system wherein they will display data around liquidity and depth more efficiently for the F&O contract and also flag risks when it comes to dealing in out-of-the-money contracts.

Puri Buch also disclosed that the regulator and the government have undertaken a “larger review” of the Sebi Act, which, once complete, will give Sebi “far more powers”.

On the issue of poor listing performance of start-ups, Puri Buch said Sebi doesn’t plan on dictating IPO pricing, but expects companies to be more forthcoming in their disclosures around them.

“At the price you choose to list is your business. We have no business suggesting otherwise. The Parliament has mandated we have no view on the pricing of issues. You are free to price the issue at whatever price you deem appropriate,” she said at a presentation.

“Six months prior to the IPO, if a company has placed its equity with a private party at Rs 100 and comes to the market at Rs 450, we have nothing to add. We expect you to disclose to the investor what accounts for the difference and what has changed,” she said.

Lately, Sebi has mandated companies to prominently display in ads the price at which a company last issued shares to investors ahead of its IPO.

Shares of new-age companies listed over the past year have crashed as much as 70 per cent, stoking a debate on whether Sebi should have stepped in.

Industry players Sebi has to walk the tightrope when it comes to safeguarding investors and encouraging capital formation.

Puri Buch lauded India Inc for its role in the development of the economy and creating jobs.

“We believe we exist to facilitate capital formation — be it equity or debt. There are many aspects of what we do that are incidental, adjacent, and conjoint, but the core function is to facilitate capital formation,” she said.

Notwithstanding the criticism that Sebi has become “over-democratic”, the Sebi chief said the regulator will continue with its consultative approach.  

“The world is more complex and we would be delusional if we take the stance that we understand everything. Therefore, we must consult,” said Sebi’s first woman chairperson.

Puri Buch likened ills such as front-running, insider trading, information asymmetry, and manipulation of stock prices to the stock market’s version of “polio and smallpox”.

She said whenever Sebi comes up with stricter regulations, the industry says “cure the people who fall ill but don’t immunise us. I find this logic a little hard to implement”.

“When Sebi comes up with a regulation, take it in the right spirit. We are attempting to build immunity here for the entire ecosystem against our own version of polio and smallpox,” she added.

Puri Buch underscored the issue of building trust for the stock market ecosystem to prosper.

“Unless there is trust, the entire edifice will crumble. Trust is the foundation for this super structure.”


Topics :SEBIIPOstock markets

Next Story