MUMBAI: Sebi has received suggestions from industry experts that the markets regulator introduce tests for investors before being allowed to trade in risky derivative products to safeguard them.Similar systems are in practice in Singapore, Hong Kong, the EU.
The proposals were sent to Sebi after the regulator last month published a consultation paper on proposed changes to rules for trading in the equity F&O segment of the market. April 17 was the last day to send comments on those proposals.
The reasoning here is that, rather than targeting the whole industry with stricter rules to protect retail investors, Sebi could, with the right training, make it safer for them to get into risky futures & options (F&O) products, sources said.

One of the main concerns of the commentators on the paper was that while the proposals could protect retail investors, they could lead to a concentration of trading in a very limited number of exchanges. The proposals could potentially stifle product innovations in the exchange place, sources said.
The markets regulator also received views that said limiting F&O expiry to just one or two days of the week could multiply volatility during the days closer to the expiry days. This could also enhance the need to deploy expensive computing powers for risk management during those closing days of the contracts. In addition, such a move could stifle competition if an upcoming exchange wants to enter the space but is unable to spend a huge amount to deploy such expensive hardware.
According to financial services consultancy firm MCQube’s Mrugank Paranjape, the proposal to limit contract expiry to either Tuesday or Thursday of the week could shift volumes to one exchange on the expiry day and thus could stifle competition. Paranjape also said that the proposal to shift all the contract expiry to the last day of the week could produce large market-wide risk.
On the proposal to restrict only one weekly benchmark index options contract per exchange, some of the commentators have said that such a move could restrict product diversity in a market that hosts a variety of actively traded indices like Nifty, the sensex, Bank Nifty, and BSE 100.
Each of these indices serves different investor segments and strategies. So, such a restriction to one contract could stifle innovation and compel traders to concentrate on fewer instruments, which could increase risk, contrary to the policy’s intention, a source said.