A dummies guide to controlling derivatives trading

Whenever we spot ideas for regulating rampant speculation specified arsenic these, we wonderment if past has taught america immoderate lessons. In my opinion, what each these caller regulations bash is either of these…

One, summation mindless online disclosures that are done arsenic portion of the process. Like, each fewer months the broker asks america to corroborate our nett worth…and similar robots we bash cheque and confirm! I wonderment if that helps the regulator execute its purpose, oregon the broker…or adjacent us! 

Two, boost income streams for bodies that behaviour examinations required arsenic portion of assorted regulations. We think, if the exam is mandatory, past first, it needs to spell mode beyond theory, and second, perhaps, it needs to beryllium free. With capitalist extortion money coffers overflowing, this is simply a no-brainer. Either way, contempt each the examinations for markets participants, we person inactive ended up wherever we have, i.e. the banal marketplace has go a gambler’s den. 

It’s clip to deliberation retired of the container erstwhile it comes to regulation.  Here are immoderate apical ideas for putting an extremity to this mindless gambling. 

First, intra-day futures and options (F&O) trading should beryllium taxed punitively. Second, brokers already determine who tin trade, and to what extent. Since they are closest to the customer, you privation them to transportation each the liability (which they already bash I guess) and much responsibility. So, if a broker is pushing the thought of trading, and accidental encouraging leverage beyond tenable limits (by immoderate means), it needs to beryllium held responsible. The Reserve Bank of India, which sets the guardrails for banks and non-banking fiscal companies, ever steps successful erstwhile it sees that determination is deviation oregon adjacent a inclination that does not look to beryllium headed successful the close direction. Perhaps, the banal marketplace regulator needs to follow the aforesaid approach.   

Third, the banal exchanges, which are listed oregon volition beryllium soon, are aiming to maximize profits. There’s thing incorrect with that. But the mode they spell astir it is what matters. The easiest mode to bash this is to marque trading easier. I americium not talking astir velocity of execution here. I americium referring to efforts to summation volumes by lowering the hurdles to trading (lower declaration sizes), oregon possibly even, lowering the outgo of trading. If I had a say, and had to marque a choice, this is wherever 1 needs to commencement to enactment an extremity to each the mindless gambling. 

In lawsuit of some the brokers and the banal exchange, it’s the laser crisp absorption connected profits that tin get america each successful trouble. Especially those who autumn for the speedy profits idea. 

Fourth, hedging positions should beryllium allowed. This was meant to beryllium the main intent of futures and options (F&O) trading! I americium definite we tin find the close exertion solutions to marque this seamless. We tin onshore a rocket connected the moon, truthful we tin decidedly constitute codification to marque each this hap existent time.

Our 5th and last thought revolves astir the retail investor. I deliberation it’s pugnacious to bushed the entreaty of speedy profits that F&O trading offers. However, we should not suffer anticipation completely. Investor acquisition efforts should beryllium encouraged. Perhaps an “F&O Sahi Nahi Hai" campaign. Since the sister communal money run has worked truthful good that radical person decided to support sip-ping, adjacent if they are bloated with the ample fig of communal money schemes they own, possibly this excessively volition person an impact. 

On a much superior note, the mode capitalist acquisition is done, particularly related to trading, needs to beryllium wholly re-thought. Now, I americium not going to connection immoderate impromptu ideas. But we are up against speedy money, truthful we request to purpose high. Maybe get everyone to basal earlier a movie starts and curse they volition not gamble successful F&O. Or thing similar that!  

Rahul Goel is the erstwhile CEO of Equitymaster.