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Mis-selling of derivatives cause high speculation in market: BSE CEO

AHMEDABAD, JULY 17:  

Holding the vested interests of select groups responsible for large volumes in derivatives segment on the exchanges, Ashish Chauhan, MD and CEO, said that mis-selling of derivatives products through these select groups makes India the second largest speculative market in the world.

Raising the issue of mis-selling of derivatives products to retail investors and traders, Chauhan highlighted the far-reaching adverse impacts on the overall participation of retail investors in such products.

"India has become second largest in terms of market speculation. The derivatives:equity ratio in India is 15, second only to South Korea at 30. Whereas other Western matured markets have this ratio much less," he said attributing this increased levels of speculation in the market to mis-selling of products like derivatives by a 'select group' of people, including brokers and exchanges.

"If there is mis-selling of insurance or any other product, people get worried. (But) I am worried about the mis-selling in derivatives. There are vested interest of small groups, who keep volumes (in derivatives) up and then claim strength in the market," Chauhan said here after an interactive session at Ahmedabad chapter of Young Indians (Yi) at CII house.

Chauhan expressed the need for a framework for retail participation in derivatives segments.

"Today, the cycle has become very fast. A person entering financial market, is directly taken to derivatives by falsely showcasing higher returns against equities. This is because brokers and exchanges get higher income from higher trading volumes. So without considering other factors like return on investments, India's market cap etc, they mis-sell derivatives to retail traders," he said.

"The person, who has faced losses in this, would never return and will tell other people not to venture into derivatives,," he added.

BSE reported derivatives (F&O in index and equities) turnover of Rs 20.97 crore for July 15, 2016 against Rs 3,04,380.30 crore reported on the NSE.