SEBI’s Risk Disclosure Framework for Individual Traders in Equity Derivative Segment

May 20, 2023

To enhance investor protection and promote informed decision making, the Securities and Exchange Board of India (Sebi) has introduced a new risk disclosure framework for individual traders in the equity Futures & Options (F&O) segment. This framework, which will come to force from July 1, aims to provide detailed information about trading risks and empower investors to make well-informed choices.

Requirements for Stock Brokers

Under the new framework, all stock brokers are obligated to display risk disclosures on their websites and inform their clients in a specified manner. Upon logging into their trading accounts, clients will encounter a pop-up window prompting them to read and acknowledge the risk disclosures before proceeding.

Prominent Display of Risk Disclosures

To ensure maximum visibility, the risk disclosures must be displayed prominently, covering at least 50% of the screen. This ensures that traders have clear visibility of the potential risks involved in their trading activities.

Empowering Investors with Information

Sebi recognizes the increasing participation of investors in the Indian securities market, especially in the derivatives segment. By providing detailed information about trading risks, this risk disclosure framework empowers investors to make informed decisions based on their own due diligence and risk appetite.

Maintenance of Profit and Loss Data

Qualified Stock Brokers (QSBs) have been directed to maintain the Profit and Loss (P&L) data of their clients on a continuous basis. This data should be retained for a minimum of five years, ensuring transparency and accountability in trading activities.

Insights from Sebi’s Study

Sebi conducted a study that revealed significant insights about individual traders in the equity F&O segment during the financial year 2021-22. The study found that 9 out of 10 traders incurred net losses, with an average loss of Rs 1.1 lakh. Conversely, only 11% of individual traders made a profit, with an average profit of Rs 1.5 lakh.

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