Can something be done against SEBI killing derivatives market?
For some time now, SEBI's intent has been to kill the derivatives segment in the capital markets of India. They have introduced certain rules which have spoiled the derivatives segment. We traders have come together and formed an association called ARTI(Association of Retail Traders of India) and discussed this issue in depth and we have decided that we want to appeal against these rules in court and for that we need a lawyer. Following are the rules that have been introduced by SEBI -
1. They increased the lot size so that retail traders will be required to bring in more capital to trade which is impractical for a retail trader.
2. Introducing physical settlement instead of cash settlement in derivatives. With physical settlement, you need to bring in the entire capital of the contract in order to expire the product which is hard and impractical. Again retailers don't have such capital. Moreover, brokers are not willing to let their clients carry their positions to expiry because even they don't want to undertake the arduous and risky procedure of physical settlement.
3. They have mandated that exposure margin is to be deposited with the exchange instead of the broker. The result of this is higher occurrences of penalties being levied on traders in case of negative margin as exposure margin is not being reported as free cash anymore. Indirectly this means higher margin requirements as free cash has to be left out.
4. This one is yet to be implemented but this one has caused an outrage among traders. They require that traders must have restrictions put on them based on their networth. This might mean higher margin requirements or a cap on trading volumes on retail traders. This is just discriminatory as different rules are being applied just becuase someone is poor.
5. Triple STT for options trade. They are levying too much tax on options. In a game where profit margins are thin, higher STT adds to the burden of charges. While STT by itself is irrational as it's to be paid even when you are making a loss, higher STT is unreasonable.
All these rules have crippled the market. There is no benefit whatsoever from these rules and regulations which is why they are irrational and ultimately business is hurt. Retail traders are crucial to the market as they provide volume and liquidity. Without them, it means less business for brokers, exchange and even the government in the form of taxes. SEBI's reasoning behind curbing participation in the derivatives market is that too many people are trading derivatives compared to equity but this is just distorted as there's no harm in that. Derivatives are crucial as a product and there's no harm if people want to participate in that. Rather it makes the market healthy and efficient. That's why we want to petition against SEBI and prevent them from killing the market. Any legal advice would be helpful.
Asked 4 years ago in Constitutional Law