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SEBI Chief Madhabi Puri Buch has raised serious concerns about the potential for 'Paytm-like contamination' within the financial markets, highlighting the critical need to protect the integrity of the system. This concern stems from the potential risks associated with centralizing KYC (Know Your Customer) processes across the financial ecosystem, leading to a potential for systemic vulnerabilities. Buch emphasizes the robustness of the existing KRA (KYC Registration Agency) system, regulated by SEBI, which ensures that once KYC is validated by a KRA, it does not need to be repeated in the capital markets. The aim of this system is to streamline the process while maintaining a high level of security and reliability.
Buch's strong stance against delegating KYC responsibilities to individual intermediaries like Paytm stems from the recent issues faced by Paytm Payments Bank. The RBI imposed restrictions on Paytm Payments Bank due to multiple lapses, including irregularities in the KYC process. SEBI's refusal to allow individual entities to conduct KYC underscores its commitment to preventing similar systemic issues from spreading throughout the financial system. Buch emphasizes that allowing entities like Paytm to operate without the oversight of a KRA could lead to a 'contamination' of the entire system, posing a significant risk to market stability and investor confidence.
Beyond the concerns about KYC, Buch also highlights the alarming financial losses that households face in the futures and options (F&O) segment. She estimates annual losses of up to Rs 60,000 crore in the F&O market, arguing that this is not just a micro-level concern, but a macro-level issue with potential implications for the broader economy. The significant losses in the F&O segment represent a drain on resources that could be productively deployed in other areas, such as IPOs, mutual funds, or other productive investments. This underscores the need for robust regulations to protect investors and ensure that the F&O market functions efficiently and responsibly.
SEBI's concerns about F&O losses are further supported by a recent study that revealed 90% of trades in the segment result in losses. The regulator has proposed tighter regulations on derivatives to enhance market stability and protect small investors, including measures to reduce excessive speculation and promote responsible trading practices. These proposed changes aim to prevent the significant losses seen in the F&O segment, ensuring that the market functions more efficiently and sustainably. The dramatic surge in index options turnover, from Rs 4.5 lakh crore in 2018 to Rs 140 lakh crore in 2024, and the increased participation of individual investors from 2% to 41% highlight the need for strengthened regulatory oversight.
To further protect investors, SEBI is considering mandating large brokers to offer Application Supported by Blocked Amount (ASBA) facilities in the secondary market. This mechanism, already successful in the primary market, allows investors to block funds in their bank accounts, which are only debited upon trade confirmation. This could potentially benefit investors by Rs 2,800 crore by reducing the risk of funds being lost due to fraudulent activities or market volatility. SEBI's commitment to strengthening regulations and implementing measures like ASBA in the secondary market demonstrates its dedication to protecting investors and ensuring a healthy and stable financial market.