Sebi to take measure for F&O segment soon; calls for tax breaks on municipal bonds

Capital markets regulator Sebi is expected to take measures regarding the Futures and Options (F&O) segment very soon, in a bid to enhance investor protection, its senior official said on Tuesday.

In addition, Sebi has urged the government to introduce tax breaks for subscribers of municipal bonds, which are crucial for funding infrastructure development.

The regulator will make a case for a tax break for municipal bonds during a meeting with the finance commission, the regulator's whole time member Ashwani Bhatia said.

Since 1997, municipalities have raised Rs 2,700 crore through bonds for infrastructure projects.

Talking about F&O, Bhatia said," Sebi is very soon going to do something about F&O. Study has come (recently)".

The regulator, in its consultation paper recently, proposed seven measures to tighten the rules for index derivatives--  revise the minimum contract size and require upfront collection of option premiums intra-day monitoring of position limits, rationalisation of strike prices, removal of calendar spread benefit on expiry day and increase in near contract expiry margin.

If implemented, these measures would help in improving risk management and increase transparency in the derivatives market.

In its consultation paper, the regulator had suggested to revise the minimum contract size for index derivatives in two phases, considering market growth.

In phase 1, the minimum contract value at the time of introduction should be between Rs 15 lakh and Rs 20 lakh. After six months, phase 2 will raise the minimum value to between Rs 20 lakh and Rs 30 lakh.

The current minimum contract size of Rs 5 lakh to Rs 10 lakh was last set in 2015.

A recent study by Sebi revealed that 93 per cent of over 1 crore individual F&O traders incurred average losses of around Rs 2 lakh per trader (inclusive of transaction costs) during the three years from FY22 to FY24. The aggregate losses of individual traders exceeded Rs 1.8 lakh crore over the three-year period between FY22 and FY24.

The report highlights an increase in the loss-making individual investors in F&O compared to 89 per cent in FY22.