Equity Futures And Options Trading Must Display Risk Disclosure, Says Sebi

In an effort to enhance investor awareness and informed decision making, the Securities and Exchange Board of India (Sebi) has announced a new rule regarding risk disclosure for individual traders in the equity futures and options (F&O) segment.
The new Sebi rule mandates that all stock brokers now start displaying risk disclosures to their clients on their websites from July 1, 2023 onwards.
The risk disclosure was necessitated by key findings from a study conducted by Sebi, revealing important statistics about individual trading in the equity F&O segment.
The format for risk disclosures on derivatives was given in the Sebi circular. 
The disclosure said, “Nine out of 10 individual traders in the equity futures and options segment experienced net losses. On average, the traders made net trading loss of around Rs. 50,000.” 
Further, these loss makers had to spend an extra 28 per cent of their net trading losses as transaction costs. Similarly, traders who made net trading profits had to bear transaction costs ranging from 15 per cent to 50 per cent of their profits.

Why New Disclosure?
Sebi said it was motivated to press for the disclosure based on the findings from the study. 
The capital markets regulator found that in the fiscal year 2022, the number of unique individual traders trading through the top 10 brokers increased by over 500 per cent compared to FY19, reaching 4.52 million.
However, 89 per cent of these traders incurred losses, with an average loss of Rs. 1.1 lakh, while only 11 per cent managed to make a profit, averaging Rs. 1.5 lakh.
Notably, the top 1 per cent and 5 per cent of active profit makers accounted for 51 per cent and 75 per cent of the total net profit, respectively, the study found.

How To Display The Disclosure?
To ensure that traders are fully aware of the risks involved, the risk disclosures must be displayed prominently on the stockbrokers' websites, and cover at least 50 per cent of the screen.
Upon login, clients will be prompted to read the risk disclosures and acknowledge them before proceeding further. 
Qualified stockbrokers (QSBs) are also required to maintain their clients' Profit and Loss (P&L) data in a specified format provided by Sebi in the circular.
In addition, the P&L data of clients must be retained for a minimum of five years. 
Sebi has also directed stock exchanges and depositories to inform their members and participants about the new circular and disseminate the risk disclosures on their websites.