Sebi is dealing with F&O trading frenzy: RBI governor

Mumbai: RBI and markets regulator Sebi have discussed the huge volumes in the futures and options (F&O) segment, amid concerns raised by finance minister Nirmala Sitharaman and senior govt officials.

"The volumes in the F&O market are very large, perhaps larger than the nominal GDP. We have discussed the matter with Sebi, and they are dealing with it," RBI governor Shaktikanta Das said at ET Now Leadership Dialogues.

The governor said that the Financial Stability and Development Council's sub-committee, chaired by him with Sebi and other financial regulators as members, had an early warning group to address issues causing discomfort. This group was examining the rise in F&O volumes. Futures allow investors to take positions on the expected price of a stock or a commodity, while with options investors have the choice to buy or sell at the pre-offered price.

Sitharaman had flagged the increasing participation of retail investors in the segment as a worry. "An unchecked explosion in retail trading in the futures and options market can create future challenges for the market, investor sentiment, and household finances," she had said last month.

F&O trading is seen as a tool to make quick money in the stock markets, but Sebi data released last year showed that 89% of the people were losing money. That has not deterred investors from getting into the speculative segment of the market with derivatives turnover on NSE soaring 30 times from Rs 247.5 lakh crore in March 2020 to Rs 7,218 lakh crore in March 2024.

Das, however, gave his vote of confidence to the markets regulator. Responding to a query on whether the financial sector was outpacing the real economy due to higher market capitalization compared to GDP, the governor said all the parameters and indicators of the Indian economy and the financial sector looked stable. "What you are implying is whether some segment is getting overheated. Sebi is fully seized of what is happening in the stock market," he said.

The governor's comments came amid a report by Reuters that Sebi is tweaking rules for derivative trading which would result in higher margins for options contracts.

Das said that if RBI has any thoughts on areas that are not under the central bank's domain, RBI shares its thoughts with Sebi. He said RBI keeps an eye on all segments of the credit markets. "We took action in the unsecured loan sector and bank lending to NBFCs. Wherever there is a likelihood of stress, if matters are left unattended, we have acted pre-emptively, and credit growth in all these areas has moderated," said Das.

At the event, SBI chairman Dinesh Khara said that capital formation was crucial for sustained growth. Responding to a question on the impact of savings moving to the capital markets, Khara said, "Money going to the capital market should lead to capital creation, not froth. Money with the banks leads to capital formation."

Das said that RBI was continuing with its stance on withdrawal of accommodation given the slow pace of disinflation, which he attributed to recurrent food price hikes, which could get worse with slightly adverse weather.


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