No more action on derivatives on anvil: Sebi WTM Narayan

The capital markets regulator is not planning any further steps to curb or restrict activity in derivatives, Sebi wholetime member Anant Narayan said on Saturday. An expert group under former RBI executive director G Padmanabhan continues to work to improve the system, and several measures on ease of doing business and better risk management are being considered, he added.

Addressing an event organized by NISM promoted by Sebi, Narayan said, “At this time, there is no idea of ​​any further action by Sebi in this regard.”

He also clarified that SEBI is not taking any action on “fitness and eligibility”, which will determine who can trade in the derivatives market.

It is to be noted that in November, SEBI had imposed some restrictions to curb highly speculative trading in the futures and options market after data showed that retail investors had lost money on 93 per cent of the trades in the last three years.

Clarifying that Sebi has nothing against derivatives and that they help in price discovery and market deepening, Narayan assured that changes would be introduced only after consultation.

Some of the measures discussed by the market regulator include measures to better measure risk in the derivatives market.

“You ideally want the volume in the cash market to be nice and liquid, and the market to have depth. And similarly, the volumes in the derivatives market should have depth, good volumes.” noted

It is necessary to ensure that there is some kind of connectivity in the liquidity of the two markets, he said.

“It’s very clear to us that the current way of measuring open interest because the concept of futures and the concept of options is just not right. It gives a very, very wrong picture, and we need to discuss how we move forward. More meaningful.” metric,” he said.

Sebi is also considering linking market-wide position limits to delivery volumes, Narayan said.

In addition, it is considering revising the index training limits imposed during the Covid pandemic to control volatility, WTM said.

Sebi is also looking into the issue of indices with futures and options and very high weighting of certain stocks from the perspective of ensuring confidence in the system, Narayan added.

“Often in social media, we hear rumblings that something is going wrong, especially in index trading. Something is being manipulated in the cash market, which is a derivative. It leads to some kind of activity in the markets, and overall, it creates either extreme volatility or no volatility and it’s being manipulated to make a profit for some people,” he said.

One of the questions SEBI is facing is whether there should be restrictions on how much weightage the top stocks or top three stocks have in the F&O indices.

“…These are some of the things that are on our minds. What you’ll see is that it’s all mostly — either the ease of doing business in terms of increasing limits, increasing the scope of what can be done, or all of us better understanding our risks. The nature of making sure we measure,” he said.