‘On one side…’: Sebi’s derivatives trading curbs defied by crypto platforms? Zerodha’s Nithin Kamath sounds alarm

Nithin Kamath, co-founder of online stock broker firm Zerodha, has pointed out the irony of promoting crypto futures and options (F&O) trading while the Securities and Exchange Board of India (SEBI) is working to limit F&O trading. 

Kamath pointed out that while SEBI's working committee on F&O has proposed measures to control the rapid growth of derivatives trading, crypto platforms are actively advertising F&O trading.

“On one side, SEBI is working on restricting F&O, but on the other side, this crypto F&O ad is on the front page of ET,” Kamath posted on X.

Discrepancy in Cryptocurrency Transactions

Kamath also noted that these platforms assume the 1% TDS (Tax Deducted at Source) rule does not apply to them, unlike regular crypto transactions where 1% of the transaction value is deducted as TDS. 

Urging the Finance Minister Nirmala Sitharaman to investigate this discrepancy, Kamath posted: “By the way, all these platforms have taken the stance that the 1% TDS rule doesn't apply to crypto F&O. For regular crypto transactions, 1% of the transaction is deducted as TDS. Something for @nsitharaman and @FinMinIndia to check out,” Kamath added.

SEBI's Measures to Regulate F&O Trading

SEBI's working committee on F&O has proposed several measures to regulate derivatives trading, including:

• Raising the minimum lot size of derivative contracts from ₹5 lakh to ₹20 lakh-30 lakh
• Restricting weekly options to one expiry per stock exchange per week
• Reducing the number of strike prices for options contracts

These changes aim to curb price speculation in the derivative market and protect retail investors.

SEBI's Efforts to Protect Retail Investors

In June, SEBI changed the selection criteria for stocks to join the derivatives segment and restricted brokers and mutual funds from engaging with financial influencers to prevent manipulation in F&O trading and protect retail investors from reckless financial advice.

On June 27, SEBI chairperson Madhabi Puri Buch told Mint, “In order to ensure that there is healthy linkage between the cash market and the futures and options market. Second is the criteria of which stocks will be permitted in F&O; we need to adjust those parameters," on the need for changing the criteria for F&O trading.

In November 2023, Buch cautioned retail traders against heavy betting in the derivatives market and suggested that investors concentrate on the equity market's long-term prospects.

According to a study by SEBI, 89 per cent of individual traders, that is, nine out of ten traders in the equity F&O segment, incur losses with an average loss of ₹1.1lakh during FY22.