India’s small traders lose US$12 billion in equity derivatives

[MUMBAI] Individuals in India lost over US$12 billion trading equity derivatives in the year ended March, the markets regulator said, raising fresh concerns about the impact of speculative activity on household savings.

The losses mark a sharp jump from 748 billion rupees (S$11.1 billion) the year before, despite efforts by the Securities and Exchange Board of India (Sebi) late last year to curb the retail frenzy in stock futures and options. 

The growing toll on retail investors may prompt Sebi to tighten trading rules further. Earlier this year, the regulator signalled it would reassess the need for additional actions after studying the impact of its November measures.

“The regulator needs to innovate to address India’s unique problem” with equity derivatives, said Deven Choksey, managing director at DRChoksey FinServ. He proposed separate trading windows for retail investors and sophisticated high-speed traders to segregate the two groups and potentially reduce risks for individual investors.

Individual investors have suffered significant losses dabbling in futures and options. According to a Sebi study released late Monday, mom-and-pop traders lost a combined US$33 billion over the four years through March –despite repeated warnings about the high risks of competing with better-funded and more experienced market players.

The latest findings come just days after the regulator temporarily banned Jane Street Group from trading in local securities, alleging it mislead retail participants through alleged index manipulation. Jane Street has disputed the claims. 

Despite Sebi’s curbs, retail traders continue to play a significant role in equity derivatives. In May, small investors made up 35.4 per cent of premium turnover in equity options, according to the National Stock Exchange of India Ltd. That’s slightly higher than before the new rules took effect. BLOOMBERG