Sebi spent Rs 62 cr in 5 years on investors' education, awareness on F&O trade risks

New Delhi: Capital markets regulator Sebi has spent a little over Rs 62 crore in the last five years for investors' education activities, including for awareness of risks and volatility in the Futures & Options (F&O) segment, Parliament was informed on Tuesday.

During FY 2023-24, Sebi spent Rs 2.73 crore from its Investor Protection and Education Fund (IPEF), Rs 11.93 crore in FY23, Rs 6.81 crore in FY22, Rs 28.84 crore in FY21 and Rs 11.84 crore in FY20, Minister of State for Finance Pankaj Chaudhary said in a written reply to the Rajya Sabha.

On a query on the steps undertaken by the government to increase awareness and regulate volatility in the F&O segment, Chaudhary said that Sebi, along with other Market Infrastructure Institutions (MIIs), undertakes various investor awareness programmes on an ongoing basis, to increase awareness with respect to the risks and volatility associated with the F&O segment, for the potential investors.

Some of the key measures taken by Sebi are statutory warnings shown on broker trading screens with respect to the risk of probable losses that an investor could suffer while trading in the F&O segment and dissemination of several investor awareness videos, created by stock exchanges, on different social media platforms in a bid to make investors aware of the risks associated with trading in the F&O contracts.

"As a part of the account opening process, with a trading member, clients are required to mandatorily sign a Risk Disclosure Document (RDD) that contains information with respect to various types of risks which clients may face while trading in the F&O segment, including volatility risks, liquidity risks, and systemic risks," the minister said.

During 2023-24, Sebi, along with its regulated entities, conducted 43,826 investor awareness programmes across 687 districts covering more than 27.93 lakh participants or potential investors.

Additionally, the regulator through its digital platforms -- Sebi Investor website and Saa₹thi App, creates awareness for all about investing in the securities market, including risk and volatility in the F&O segment.

Futures and Options trading involves contracts that derive their value from an underlying asset, such as stocks or commodities. Futures contracts obligate the buyer and seller to transact at a predetermined future date and price, while options give the holder the right, but not the obligation, to buy or sell the asset at a set price within a specific period.

These financial instruments are used for hedging risks, speculating on price movements, and arbitraging price differences. However, they come with significant risks, including leverage risk and market volatility, which can lead to substantial losses.

Last week, Finance Minister Nirmala Sithraman raised the securities transaction tax (STT) on both futures and options trade from October 1, in a bid to allay concerns about hyperactive interest in the derivative segment.