SEBI Introduced Risk disclosure Framework

Current Context: SEBI (Securities and Exchange Board of India) has introduced a risk disclosure framework for individual traders for trading in the equity Futures & Options (F&O) segment.The stock brokers will have to display the risk disclosures on their websites and to their clients upon login into their trading accounts.

• The risk disclosures will inform the investors about the high probability of losses in trading in equity F&O segment.
• The circular also requires the Qualified Stock Brokers (QSBs) to maintain the Profit and Loss (P&L) data of their clients on continuous basis. The new framework will come into force from July 01, 2023

Trading in equity F&O segment has some benefits, such as:

• Leverage: You can trade with a small amount of margin money and take positions bigger than your capital.
• Risk transfer: You can transfer the risk of price fluctuations to someone who is willing to accept them.
• Hedging: You can protect your portfolio from adverse market movements by taking opposite positions in F&O contracts.
• Speculation: You can profit from your view on the direction of the market or a particular stock by buying or selling F&O contracts.

Question:

Q.1 What is the main objective of the risk disclosure framework introduced by SEBI for individual traders in equity F&O segment?
a. To facilitate informed decision making by investors
b. To regulate the stock brokers and exchanges
c. To increase the participation of investors in derivatives market
d. To reduce the volatility and risk in derivatives market