Mumbai, May 1 (PTI) Tuhin Kanta Pandey, chief of market regulator Sebi, ruled out the possibility of competency testing for retail traders who wish to participate in the futures and options (F&O) space, saying it is impractical and easy to over-regulate.
The Securities and Exchange Commission of India (SEBI) earlier proposed measures in November last year to curb speculation about excessive derivatives. These regulatory steps were drawn after a SEBI study that showed that nine out of 10 retail investors lost money when trading with F&O Instruments.
When asked about the industry’s recommendations to test retail investors before allowing retail investors to conduct risk derivatives, Pandey shed light on the regulator’s position. “Now, we aren’t really thinking about any of these things.”
He explains the concerns behind such suggestions for practicality and effectiveness. “First, we also have to see, will this be over-regulation? Can you do it effectively?, he told PTI in an exclusive interview.
He clarified that SEBI has provided a certification mechanism for specific market participants.
“I mean, we do fit a specific player, and among the people who are registered in the system, we do have this. For example, there are several nism certifications. But applying it to millions of retail merchants would be a different challenge.
“…Tomorrow, some people will say, if you want to do it for a mutual fund, you will have to do a competency test. So, who will accept it? How will it pass? So, how will it pass? So, we have to see its pragmatism too. I don’t think, you know, that situation is our moment,” he said. ”
He stressed the importance of personal choices in managing personal finance and pointed out that people should have the autonomy to decide how to use their money.
“We have to really give people their own money to ourselves. We are also very dissuading the leverage of trading.”
The SEBI Chairman is similar to behavioral tendencies and human psychology in emphasizing personal responsibility, in a risk-taking manner.
“…every time you do F&O training, you have a dad saying, like the statutory warning, smoking is harmful to health. People still smoke again. So, I think…if it’s an addiction, if you’re very aware of the risks, that’s another thing,” he said.
He admits that if the transaction becomes addiction, it will enter the realm of “degassing” problems, which needs to be seen from different shots.
He added: “In a way, I think we have to really see, we have to respect individual choices, too. Because people do do a lot of time and then they learn from their mistakes and then they actually become better players, too.”
Based on a broader regulatory perspective, he reiterated that Sebi rejected leveraged trading due to its high risk nature.
“We are also very dissuading the leverage of the deal. I mean, trying to borrow money and interests in this way… In fact, within Indian jurisdiction, leveraged acquisitions are not actually allowed. You also have no interest in this. Even in the AIF industry, even in the AIF industry, we do not allow leverage, high-risk things. So, you can usually control your own life and life.
“In a democratic country, they have to have their own choices,” he added.
