Sebi plans to increase tenure, maturity of equity derivatives

Mumbai: Sebi is planning to increase the tenure and maturity of equity derivatives contracts, its chairman Tuhin Kanta Pandey said on Thursday.

"We have often stated that equity derivatives play a crucial role in capital formation, but we must ensure quality and balance. We will consult with stakeholders on ways to improve, in a calibrated manner, the tenor and maturity profile of derivative products, so that they better serve hedging and long-term investing," Pandey said at the FICCI event here.

"We are looking to deepen the cash equities market, which is the true foundation of capital formation. Volumes in cash market have grown rapidly doubling in terms of daily traded volumes over a period of just three years. However, much more needs to be done."

This had triggered a sharp fall in capital market stocks like BSE and Angel One during the day.

Average daily traded volumes in equity cash markets have grown rapidly by over 25% compounded annual growth rate over the past five years, to well over ₹1 lakh crore now.

The regulator thinks more needs to be done, given the sharper rise in short-term derivative volumes.

Sebi whole-time member Ananth Narayan said improving the tenor and maturity profile of derivative products would support sustained capital formation and foster trust in the ecosystem. "This may also need to be achieved in a calibrated manner, giving the system adequate time to adjust," Narayan said.

"Equally important is ensuring risk awareness and suitability amongst participants. We are open to objective and simple mechanisms to ensure that derivative participation is informed, suitable, and appropriate."

Sebi has been uncomfortable with the heightened activity in equity derivatives by retail traders in recent years. Recently, it put a temporary ban on US trading firm Jane Street for its trading strategies that allegedly manipulated a crucial stock market index. Jane Street has refuted these allegations, stating that its trading strategies were merely straightforward arbitrage.