Tuhin Kanta Pandey, chairman of the Securities and Exchange Board of India (SEBI), has rejected the possibility of any type of aptitude test before trading in risky derivative products such as Futures and Options (F&O) for retail investors. He said that this step is impractical and may increase the risk of regulatory overreach.
In November last year, SEBI implemented some measures to control excessive speculative activities in derivatives. The step came after SEBI’s study, which revealed that 90% of the trading in F&O causes damage to retail investors.
When asked about the proposal for the Aptitude Test suggested by the industry, Pandey said, “We are not at the moment.” He clarified that it would not only be difficult to apply such steps, but will also question practicality and effectiveness.
He said, “If we make this test mandatory for retail investors, tomorrow someone will say that there should be a test even before investing in mutual funds. Then the question will arise as to who will take the test, how and how to pass?”
Pandey said that SEBI already has certification arrangements for some special partners. For example, NISM certification is mandatory for registered investment advisor (IA) and research analyst (RA). But he clarified that it is not practical to implement it to millions of retail investors.
The SEBI chief emphasized the freedom of the people in individual financial decisions. He said, “People should get the right to take decisions on their own earnings. We also discourage Leverage by borrowing for trading.”
He emphasized that the tendency to take risks is a human nature. He said, “You will give a warning on training every time in F & O trading, like a cigarette pack is given that smoking is harmful to health. But still people smoke cigarettes. Similarly, if the trading becomes a addiction, it will have to look from the perspective of ‘de-addition’.”
Pandey admitted that people learn by making mistakes many times and become better investors. He said, “We should respect people’s right to learn from experimentation and experience.”
The SEBI chief reiterated on leverage in high -risk trading that SEBI’s trend is clear – “We do not allow leverage byouts. Even AIF (Alternative Investment Funds) is not allowed leverages.”
In the end, he said, “In a democratic country, you cannot have complete control over the lives and resources of you. They should get the right to take decisions with their economic freedom.”
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First Published – May 1, 2025 | 7:16 PM IST
(Business Standard Staff has changed the headline and photo of this report, the rest of the news has been published without any change from a common news source.)
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