'Aim Of Regulation Is To Protect Small Retail Investors': Ashish Gupta On SEBI's New F&O Rules

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00:00Ashish Gupta joining us. He's CIO at Axis AMC. Mr. Gupta, thank you so much for speaking with us.

00:05And of course, you were on the panel, which looked at some of those proposals that SEBI

00:11has put forth. So, you know, is it harsh, the way that these regulations are going forth?

00:20Could a more calibrated attempt have been made? Or do you think that this is what's appropriate?

00:25Looking at the number of volumes and the profile of investors who are coming into the F&O segment.

00:33So, good morning, Kamana. I think SEBI, the guidelines they have released has come after

00:42due consideration. I think they took consultation and if you see SEBI press release,

00:51I think they highlighted that they got thousands, I think more than 10,000

00:56people giving their comments and all were duly considered before coming out with the final

01:02guidelines. In fact, if you see the implementation schedule is also calibrated over the period of

01:12time, nearly six months. I think SEBI has been quite pragmatic in A, looking at this space,

01:18you know, because there was clearly a client need for action. We have seen,

01:26as SEBI has also characterized, the detailed frenzy that comes in, particularly around weekly

01:34expiry dates. And we are seeing this in the market as well. So, I'm sure on the shows you see

01:42the kind of volatility we have seen in the past few weeks in the last half hour or last

01:48trading, whenever there's a big weekly expiry. And SEBI document highlights that nearly 25,

01:5830% of all volumes happen in the just last one hour of that expiry. So, I think there was

02:06some need to rationalize the activity here because it adds both macro and micro risks

02:12to the market and the economy. Mr. Gupta, I wanted to understand from a sophisticated

02:19trader point of view, a trader or a participant who actually deals with substantially higher

02:26volumes, substantially larger funds in the futures and options space,

02:30do things change coming down to November 20th down the line?

02:36So, I think the whole aim of the regulation is not really to impact the sophisticated investor.

02:46It is actually really to protect the small detail investors. And some of them were getting pulled in

02:54because the ticket sizes of some of these option contracts was very low. And in fact, if you see

03:04the SEBI data, most of the losses on this trading activity was being borne by actually these

03:11investors. And I think what SEBI is trying to do is make sure these kinds of investors don't get

03:22lured into this activity. And as you would have seen in the SEBI document that came out a couple

03:29of weeks ago, even in the last financial year, 91% of detail traders actually lost significant

03:37amount of money. I don't think there is going to be an impact for the sophisticated investor,

03:45but for the fact that the counterparty, which are the small detail investors, hopefully

03:52it will not be as meaningful as was earlier.

03:58Ashish, was one way of doing this then identifying who could trade and have a filter,

04:05say on income tax returns filed or those kind of parameters? Because if you wanted to

04:12keep small investors out, then define and then target small investors from staying out.

04:19Was that one way to look at it or was this the best way? Because this is a more broad-based

04:23kind of an action, including reducing the number of weekly expiries.

04:29I think the challenge with some of those measures is really how well they can be executed.

04:39So, and where does the control lie? So, it has to be declaration-based

04:49and there are obviously challenges, you know, in India, how many people file income tax returns,

04:56you know, how many people can have an account and if someone else trades on that account.

05:04So, how do you really implement those? So, there are several suggestions and I'm sure

05:12that we will look at those, whether there is sophistication in terms of knowledge of the

05:18investor, minimum threshold of whether net worth or as you said income, but really some of those

05:28look better on paper, but really implementing them is very challenging.

05:33So, there's always the element of human behaviour and needing to take that speculative stance when

05:39it comes to equity markets. Now that this avenue moves out of the way, do you think

05:45that there could potentially be a shift towards relatively smaller stocks once again in the cash

05:52market? Do you think that there could be some changes that potentially that segment of the

05:58market that would undergo this? Sure. So, I think SEBI in their statements have spoken about the

06:08fact that they also believe that speculative element is an integral part of the market.

06:16It has really several positives in the way it impacts capital markets, whether it's in

06:26terms of liquidity or price discovery or arbitrage and the idea is not to kill all

06:34speculative activity. In fact, if you see on single stock futures and options and in particular

06:42options, SEBI a few weeks ago has actually come out with the detailed guidelines which will allow

06:48even more stocks to come into the ambit of single stock options. What here is being looked at

06:56is really one particular segment and this relates primarily just to index options, right, and that

07:04to just a weekly expiry and within weekly expiry the frenzy trading that happens on the expiry day.

07:13So, I think that is what SEBI is looking to do. It wants more participants to come into the market

07:23and if we look from a medium to long-term perspective, we want investors coming into the

07:29market to get a good experience of the capital market, right, and if you see the numbers that

07:36were put out in the SEBI report a few weeks ago, in the last three years nearly one crore investors

07:46on average have lost about two lakh rupees and that is a very significant amount of money. So,

07:54that's about two lakh crores of losses for retail investors and most of these investors are less

08:02than 30 years old. So, that's not really the experience of capital markets we want to give

08:08to our young investors. Yeah, you know, what do you say to those who

08:15argue that these investors will then move on from derivatives to

08:21maybe online gaming or to online lotteries or to dabba trading because

08:28money will find its destination, isn't it? Yeah, so I think if you look at the online

08:35gaming industry, it is already about 10x the options market, right, and actually we

08:43and I personally would not want our capital market players to really come in and see this as

08:51an equivalent of online gaming, right. The fact that online gaming is growing at a

09:00pace that is a separate matter of concern and 300 million people are already active there,

09:07that is another issue of concern, right, but I think the fact that about 40 million people are

09:15actively trading derivatives in this market and incurring this magnitude of losses is

09:22really what we need to control. All right, Mr. Gupta, we'll leave it at that. Thank you so much

09:27for joining us and giving us perspective on the latest changes that have been brought forward by

09:31the SEBI as far as the futures and options space is concerned. Again, this is something which is

09:36developing and we'll get a much better idea of how markets are going to take this on come November

09:4320th and after that.

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