SEBI may consider circuit filters for F&O segment to safeguard Investors

 

Why SEBI not putting circuit limit in F&O script?

A drastic fall in one stock often has a ripple effect as traders who lose heavily in that stock start unwinding or closing positions in their other stocks or futures to cover up for the losses.

Recently Indian Stock Market has seen massive non stop correction which started in mid of september and still becoming more stronger as each day passes. The Securities and Exchange Board of India (SEBI) due to this abnormal market reaction and unpredictable volatility it may consider daily price limits — circuit filters in market terms. Normally it is currently present for non F&O stocks at the moment but now even they are considering for stocks that are part of the future and options (F&O) segment.

This follows by the deadliest falls in some midcaps stocks like Yes Bank, DHFL, India Bulls Housing Finance and Infibeam over the last couple of weeks, with share prices of some companies have been eroded by more than 50 percent in a single day.

Another source said National Stock Exchange and Bombay Stock Exchange have urged SEBI for guidelines on price bands for F&O stocks.

On September 21, shares of Dewan Housing Finance fell nearly 65 percent on reports that its 1-year commercial paper, due in June 2019, was sold by DSP Mutual Fund at a deep discount. A week later, on September 28, shares of e-commerce player Infibeam fell by close to 70 percent.

In this cureent scenario both exchanges and broker associations are in deep concern and need for circuit filters in the Futures & Options segment. SEBI is considering forming a working commitee to establish and explore the possibilities that if there is a need for circuit filters or not in the F&O segment, and even tightening the norms for adding any stock into the F&O segment.

The thinking behind not having a circuit filter in stocks part of the F&O list was that a steep fall or rise in the stock price could be tempered as investors took opposite positions in the futures market. So when prices plunge, investors who have sold the stock can hedge their positions by buying futures or even make a trading gain.

Similarly, when prices rise sharply, investors who have bought the stock sell the futures, either to hedge their positions or make a trading profit.

But this assumption doesn’t take into consideration that in times of panic, traders may not try to profit from the situation by taking opposition position in the futures.

As of now, there are 204 stocks in F&O segment. “Exchanges should do qualitative analysis before taking stock into F&O segment including default history or rating agencies as many retail investors also participate in derivative segment,” a market expert said.

Sebi doing every possible thing to exempt retailer from F&O trading then on other hand why Sebi is not defining any circuit filters in F&O stocks.
Remember some massive wealth destroyer in Futures segment in the past was satyam computers ,pc jewellers, jp associates and many more and now in 2018 stocks like yes bank, dhfl, India bulls housing finance and infibeam.
As you see on a broader perspective that every long term invester put their hard earned money in these stocks and build their portfolio for good returns and these stock vanished their 3-5 year growth in a day or two.

So if this thing happens in FNO then why sebi introducing many rules and regulations like margin requirements, asset certificate, ITR etc for retailers so that one good day some big punters or operators will come and slam a particular script with over 50% in one day and retailers have no choice other than to see his all capital gets eroded in one day.

Actually is it true that lots of people who had burnt hands in F&O trading often says retail traders and investors are not for Futures and Options Market they are only for cash and mutual funds and so called SIP.