SEBI Uses Data, Warnings to Curb Retail Losses in F&O, Says Chairman

In an interview with ANI, Pandey said SEBI's approach is to maintain "optimum regulation" so that markets remain both safe and innovative. He noted that derivatives markets serve important functions but require careful oversight when retail participation becomes risky.

"Futures and options markets are very essential. They help in price discovery and enable hedging. So they are important markets, and we have to ensure that we develop them in a proper way," he said.

However, the SEBI chief acknowledged that specific stress points had emerged. "The problems that we noticed were first addressed through data, we put out what was happening in terms of a large number of retail investors entering that market," he said.

Pandey pointed particularly to activity in weekly index options near expiry. "We did identify problems in options, specifically weekly index options on the expiry day," he said.

The chairman said SEBI publicly released data to highlight risks after observing significant retail losses.

"Our data showed, and we made it public, that collectively there were substantial losses occurring," Pandey stated.

To make risks explicit to traders, SEBI introduced statutory warnings on options trading platforms. "We introduced a statutory warning, similar to those on cigarettes, stating that 9 out of 10 traders are losing money in options. So that is the warning we are giving. A pop-up message will appear whenever someone wants to trade in options," he said.

At the same time, he acknowledged the behavioural challenge. "I do not know how you make adults fully aware," he remarked when asked whether such warnings are effective.

Pandey said post-COVID retail participation in derivatives was partly fuelled by misleading online narratives.

"Post-COVID, there was significant influence from online influencers, possibly spreading misleading claims that a lot of money could be made in these markets," he noted.

To address the risks, SEBI has taken multiple steps. "We have taken measures against influencers. We have also taken action against HFTs," he said.

Pandey stressed that SEBI will avoid blunt interventions and instead rely on evidence-based regulation.

"Going forward, our work will be to build databases, analyse the data, and assess the impact of the measures," he said, adding that some steps "came into effect as late as December."

Future action will depend on the results. "After analysis, we will assess whether we need to do anything more and determine what is effective," he said.

Emphasising regulatory philosophy, Pandey added: "Market development is not about a sledgehammer approach, but more like using a surgeon's knife, identifying problem areas precisely and dealing with them."

- ANI