The Securities and Exchange Board of India (Sebi) will soon notify stricter derivatives trading norms aimed at curbing speculative trading activity and curtailing losses of over Rs 50,000 crore incurred by retail investors every year.
Based on the feedback received from industry participants, the seven measures proposed by the market regulator in a consultation paper in July will be implemented with minor tweaks ahead of its forthcoming board meeting, said three sources.
According to sources, the regulator has provisions to issue the final norms without presenting the proposals to the board for approval.
Another official said that the regulator wants to install the guardrails as early as possible in the interest of retail investors who keep losing money in the segment.
Sebi did not respond to emailed queries seeking confirmation, despite attempts to reach out until press time.
Sebi’s paper drew responses from over 6,000 entities, with the public and key stakeholders submitting their feedback before the August 20 deadline. Chairperson Madhabi Puri Buch revealed last week that the regulator was analysing the vast array of inputs received.
Among the feedback received by Sebi is phased implementation of the measures, a qualification criterion for traders, and dilution of rules around higher margin requirements and position limits.
Sebi’s key proposals included limiting weekly options contracts to one index per exchange, higher margin requirements near expiry, and a higher entry point by increasing the contract size. The regulator’s proposals include an increase in the minimum contract size to Rs 15 lakh-Rs 20 lakh from the current Rs 5 lakh. This will further be increased after six months of the introduction of the contract.
The suggestions were based on the recommendations of an expert working group.
Though the key market infrastructure institutions (MIIs) have agreed in principle on the approach by Sebi, the exchanges have submitted their concerns on higher margin requirements and monitoring of position limits, said people aware of the developments.
“Such margin requirements will create high entry barriers suddenly. It is a recommendation to relook the limits,” said a source.
Another official from an industry association said that they have recommended a phased implementation or glide path for increasing the entry barriers. The industry body has also called for ‘qualification criteria’ for traders. However, the official did not clarify whether they have suggested any specific certification requirement.
Several brokers have submitted feedback suggesting major tweaks from the proposed guidelines, raising concerns that the changes might bring more inclination towards options—which are considered to be even riskier.
Sources said the expert group will monitor how the new measures are impacting trading patterns and will suggest follow-up measures to attain the larger goal of investor protection and market stability.
One of the brokers has suggested that the mandate for one benchmark for weekly expiry per exchange should be relooked, and the volume traded should be considered a more decisive factor while deciding which index derivatives should continue for weekly contracts.
However, market experts said that such a change could lead to a monopoly in the market ecosystem.
Another tech-based broker said that they expect a decline of 25 per cent to 30 per cent in their revenues from the segment.
According to a recent report by IIFL Securities, the proposed curbs could dent the earnings of the largest bourse, National Stock Exchange (NSE), by 20 to 25 per cent.
Last month, Sebi issued new eligibility criteria for the selection of single stocks in the futures and options, where daily volumes frequently exceed Rs 500 trillion (optional turnover for options). The government has also imposed a higher Securities Transaction Tax (STT) on trades in the segment.
First Published: Sep 04 2024 | 8:33 PM IST
