## Sebi Chief Discusses Retail Traders and F&O Participation
Securities and Exchange Board of India Chief Tuhin Kanta Pandey has dismissed the idea of implementing an aptitude test for retail traders aiming to engage in the Futures and Options segment. He considers such a move impractical and potentially a form of regulatory overreach.
In November of the previous year, Sebi initiated steps to limit excessive speculation in derivatives. This decision followed a study conducted by Sebi, which indicated that a staggering 90 percent of retail investors incur losses when trading in F&O instruments.
When questioned about the industry’s proposal for introducing tests for retail investors prior to allowing them to trade in high-risk derivative products, Pandey reiterated the regulator’s position. He stated, “At this moment, we are not actively considering any of those ideas.” He elaborated on the practicality and effectiveness concerns associated with such proposals, questioning the feasibility of their implementation and potential regulatory implications.
Pandey emphasized that Sebi already has certification processes in place for certain market participants. He noted that there are existing mechanisms, such as NISM certification, for registered advisors and investment advisors. However, extending this requirement to millions of retail traders would present a significant challenge.
He further stated, “If we were to impose testing for mutual fund investments, we would need to consider who would administer the test and how it would be evaluated. We must also consider the practical implications of such decisions. I do not believe this is something we are planning in the near future.”
Pandey highlighted the importance of personal choice in managing finances, asserting that individuals should have the freedom to decide how to utilize their own money. He remarked, “We must grant individuals the autonomy over their finances. We also strongly discourage leveraged trading.”
He also stressed the concept of individual responsibility, linking it to behavioral tendencies and human psychology regarding risk-taking. He illustrated this point with an analogy, stating that just as many people ignore health warnings about smoking, traders may also engage in risky behaviors despite being aware of the potential dangers.
Pandey acknowledged that if trading becomes an addiction, it shifts into the domain of “de-addiction,” which should be approached from a different perspective. He noted, “We must respect individual choices, as people often learn from their mistakes and become better traders over time.”
Regarding the overall regulatory outlook, he reiterated Sebi’s stance against leveraged trading due to its inherently high-risk nature. He remarked, “We strongly discourage the use of leverage for trading. In India, leveraged buyouts are not permitted, and we do not allow leverage in the AIF industry. Ultimately, while we can provide guidelines, we cannot control individuals’ lives and financial resources.”
He concluded by emphasizing the importance of personal choice in a democratic society, stating, “People must have the freedom to make their own decisions.”
