SEBI Approves New Entry And Exit Criteria For F&O Stocks

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00:00Sandeep Parekh, Managing Partner at Finseclaw Advisors with us.

00:02Sandeep, thanks for waiting by patiently while we were just polishing off that conversation

00:06on the bond inclusion.

00:08But Neeraj here, good morning.

00:10Did you get to hear what you anticipated because there's a lot of talk around how to manage

00:17this quote-unquote manic options trading that's happening in the country?

00:22Hi, good morning.

00:25I think, like I always say, I think the regulator's job is to remove ignorance and not stupidity.

00:34But having said that, I think it's pretty important to also reiterate that market design

00:40should not also kind of promote gambling on the markets.

00:46Ultimately, there is some benefit to gambling, which is it provides liquidity to other people.

00:52But in the F&O market, I think the tail seems to be wagging the dog and I think that there

00:59are serious concerns in terms of people kind of losing their life savings.

01:04And again, we tried to bring in, remove ignorance last year by putting out statistics which

01:10showed 89% of people are losing money in the F&O markets.

01:14And they still continue to trade, probably a new bunch of people after they wiped out

01:18the network.

01:19But it is kind of playing with fire and I think it's not very clear to me with this

01:26announcement that they're going to crack down on retail trading of F&O.

01:32But you know, it has more to do with inclusion and exclusion of stocks over which F&O gets

01:40traded.

01:41Got it.

01:42So Sandeep, yeah, I wanted to get into that.

01:44I mean, one way to look at it is and there are enough institutions who come in and say

01:47that don't tinker with that market too much because it has its benefits and it's imperative

01:52upon people themselves to figure out whether they want to trade into options or nobody's

01:56forcing them to do that.

01:57But the other aspect also, which she hinted to, towards the liquidity of certain stocks

02:02which are present in the derivative segment, it's always been a talking point in the past,

02:06some things like this has done.

02:07So that I didn't find to be anything new.

02:09Did you?

02:10Please correct me if I'm wrong.

02:12No, sir.

02:13I think what she said was more in terms of there may be new inclusions and new exclusions

02:19in the list of F&O stocks.

02:22I didn't see kind of a big systemic change in the way, you know, those F&O are traded

02:28in the market.

02:29So that's not what I understood.

02:30But again, you know, this is somewhat sketchy at this stage in terms of what they plan to

02:37do.

02:39It seems to be more to do with just the number of stocks and the names of the stocks which

02:44get into the F&O trades.

02:46Okay.

02:47I have a final question on finfluencers.

02:49But before that, Sandeep, just rounding off this point.

02:51So this thing about what action they take on derivative trading, particularly options

03:00trading is one which is fraught with a bit of fire, if you will, right?

03:06Because a lot of beneficiaries, a lot of liquidity and depth that comes in as a result

03:15of this as well.

03:16And it's very difficult to pick and choose what side to attack because you have to make

03:20a uniform policy per se.

03:22What do you think could possibly happen?

03:24Because they will consult people, exchanges as well as brokerages will give their views

03:29as well.

03:30And it's their earnings to lose per se, but be that as it may.

03:33What do you think can realistically happen in something like this?

03:37No, so again, I'm not talking about the present scenario, but I think in the future, I mean,

03:43the way to restrict these trades would be to increase the ticket size, the amount of

03:49money that you pay up front and probably a larger margin on an ongoing basis.

03:56So I mean, those are the kind of things which, the ticket size, the margins, those are the

04:00things you can play with to kind of make it less attractive to the most detail.

04:05But again, you know, remember, it's a kind of a shortcut in our brains really, right?

04:09We think that richer people are smarter.

04:12That may not be always true, you know, you can have pretty rich people who are gambling

04:18the money away.

04:19So it's a shortcut, it's not going to fix the problem, according to me.

04:25But yeah, I mean, ultimately, people will have to burn their fingers and then learn

04:30that, you know, this is not a market to make free money, you know, it's a zero-sum game.

04:35Unlike the equity cash market, you know, where the markets go up, you make money.

04:39The F&O market is actually a zero-sum game.

04:42So for every one rupee you make, somebody's lost a month, one rupee.

04:45Right.

04:46Sandeep, hi, it's also Samina joining in.

04:48Just moving away from the F&O space as well has been easing the delisting norms.

04:54The regulators also introduced the fixed price process as an alternative to reverse

04:57book building process for delisting.

05:00Do you feel like this is a step in the right direction?

05:02Because it's easing the process, it's making it a little more flexible, which might actually

05:06be maybe a good thing, I'd imagine.

05:08Yeah, it's a good thing because, you know, again, we, for the past 25 years, we've been

05:15thinking that once you raise public monies, you know, it should not be very easy to exit

05:20the markets.

05:21And secondly, you know, in theory, this process is actually very fair that you do a process

05:28which is very similar to the IPO in terms of, you know, you have a building process

05:32and the price gets discovered electronically.

05:34But in practice, what really happens is five or seven people kind of corner the shares

05:39and, you know, they really kind of ensure that the delisting fails and, you know, the

05:46high price which they're seeking, you know, really results in failure of the delisting

05:50itself. So it's, you know, number one, you know, the Hotel California syndrome that you

05:55once you list, you cannot never exit, restricts the number of people who want to come to the

06:01public markets because they know that they're stuck forever if they do an IPO.

06:06And secondly, you know, the retail investors who do deserve that, you know, the higher

06:10price actually don't get the money.

06:12It's a cuddle of five, seven people who kind of end up.

06:16So I think Xavier has recognized this reality and kind of tried to make it a lot fairer

06:22for the number one, the delisting to occur, which is fairer on the company.

06:26And number two, you know, just have some kind of more sensible pricing norm, which is

06:32not sabotaged by five people.

06:34And, you know, I think the fair price and the fixed price would be useful in achieving

06:42that goal.

06:43Hmm. Okay.

06:45Sandeep, one final question really on the influencers, long coming, long expected for a

06:49lot of quarters of the market, long wanted and maybe rightly so, because some of the

06:54some of the observations are appalling to say the least.

06:58What did you make of that?

07:00So, again, you know, what's in public domain, but not much talked about is almost every

07:05week that it comes out with on average one or two orders where they do crack down on

07:11specific influencers who are trying to provide investment advice.

07:14And, you know, as you probably can guess, you know, the definition of investment advice

07:18is extremely broad and even include somebody who holds himself or herself out as an

07:23investment advisor. So, you know, I think the problem really has to do with bandwidths.

07:29You know, really, SEBI can't go after lakhs and lakhs of influencers who are kind of

07:36hanging out there giving gyan.

07:39And therefore, I think SEBI has chosen a kind of different approach, which is what we

07:45had expected. And it's also in line with freedom of speech.

07:49People can talk whatever nonsense they want.

07:51We can't stop them from talking.

07:53SEBI is the idea that we want to kind of block the regulated ecosystem from

08:00communicating with this kind of so-called influencers space.

08:06Which is for the most part garbage, you know, to the extent it's not garbage, they've

08:12allowed exceptions, you know, where it's genuinely educational, where there are specific

08:16platforms which SEBI is comfortable with.

08:19So they've allowed exceptions to the rule, but broadly they don't want the regulated

08:25world to communicate with the unregulated world.

08:28So, I mean, that's kind of the architecture, which also preserves SEBI's bandwidth, not

08:34to go after, you know, 5 lakh influencers and YouTubers.

08:38No point well noted.

08:40Great. Sadiq, take a moment to thank you for joining me today and giving us your thoughts.

08:43Really appreciate your time.

08:44Thanks.

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