SEBI approves stricter rules for finfluencers and forms committee to study impact of retail investors’ speculative trading in F&O segment.

During its board meeting on Thursday, the Securities and Exchange Board of India (SEBI) approved a series of proposals, including stricter regulations for finfluencers, changes to the process for including stocks in futures and options (F&O), and updates to the voluntary delisting procedure.

After the board meeting, SEBI Chairperson Madhabi Puri Buch spoke to the media about the decision to form an expert committee. This committee will focus on understanding the impact of retail investors engaging in speculative trading within the F&O segment. Such activities, she highlighted, have been observed to deplete household savings significantly, with some individuals resorting to borrowing money to participate in these trades.

Madhabi Puri Buch emphasized that the committee’s role is crucial in assessing how these speculative bets affect financial stability and investor behavior. The aim is to gather insights into the broader implications of such trading practices, particularly their potential risks and consequences for individual investors and the overall market dynamics.

Restrictions on Financial Influencers

SEBI approved regulations to oversee unregistered financial influencers, commonly known as finfluencers. This move comes amidst growing concerns about the potential risks posed by unregulated finfluencers who often provide biased or misleading advice, typically operating on a commission-based model.

In response to these concerns, SEBI’s board endorsed a proposal to regulate such finfluencers. Additionally, the regulator decided to implement a fixed price mechanism for delisting frequently traded shares and introduced a delisting framework specifically for Investment and Holding Companies (IHC), as per a statement released after the board meeting.

Establishing a Fixed Price Mechanism for Voluntary Delisting

The SEBI board has approved a fixed price mechanism as an alternative to the reverse book building process (RBB) for delisting companies with actively traded shares. Under this new rule, acquirers must offer a price that is at least 15% higher than the floor price set by delisting regulations.

Additionally, SEBI has sanctioned an alternative delisting framework for listed Investment Holding Companies (IHCs) through a “scheme of arrangement by way of selective capital reduction.” According to the updated guidelines, a listed IHC, where at least 75% of its net fair value consists of direct investments in equity shares of other listed companies, can distribute these shares proportionately to its public shareholders.

Furthermore, IHCs will have the option to provide proportionate cash payments to their public shareholders for other assets, such as investments in real estate, unlisted companies, and more. Once all public shareholding is extinguished, the IHC will be delisted, SEBI confirmed.

Refined Criteria for Entry and Exit in Futures and Options Trading

The revised criteria for entry into the derivatives segment are based on the performance of stocks in the underlying cash market:

1. Stocks eligible for entry must maintain a Median Quarter Sigma Order Size (MQSOS) of at least ₹75 lakh over the last six months on a rolling basis.
2. The stock’s Market Wide Position Limit (MWPL) must not fall below ₹1,500 crore on a rolling basis.
3. Average Daily Delivery Value (ADDV) in the cash market for the previous six months on a rolling basis must be at least ₹35 crore.

For exiting the derivatives segment, applicable to stocks with at least six months of tenure, the following criteria have been approved:

1. At least 15% of active trading members in all stock derivatives or 200 trading members (whichever is lower) must trade in any derivative contract of the stock on average monthly during the review period.
2. Trading activity must occur on a minimum of 75% of trading days during the review period in the derivatives segment.
3. Average daily turnover (futures + options premium) during the review period must be at least ₹75 crore.
4. Average daily notional open interest (futures + options notional) of the particular stock must be at least ₹500 crore during the review period.

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