Sebi plans to raise tenure, maturity for equity derivatives: Tuhin Kanta Pandey

India's capital markets regulator Securities and Exchange Board of India (Sebi) is considering increasing the tenure and maturity of equity derivatives contracts in a calibrated manner, chairman Tuhin Kanta Pandey said on Thursday.

Speaking at a FICCI event today, the Sebi chief reiterated the regulator's resolve to deepen the cash equities market calling the segment as a "true foundation of capital formation". While acknowledging the role of derivatives segment in the growth of the overall market, Pandey said that Sebi must ensure quality and balance.

He said that even as the market watchdog's action has been towards achieving this goal, its approach remains thoughtful and consultative.

"Sebi’s approach in relation to equity derivatives has been thoughtful and consultative. 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. 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," Pandey said.

India accounts for nearly 60% of global equity derivatives volumes, but retail traders have faced steep losses. A Sebi study showed retail investors lost Rs 52,400 crore in the year ended March 31, 2024, compared with gross profits of Rs 33,000 crore for proprietary traders and Rs 28,000 crore for foreign investors.

He underscored the importance of innovation in the capital markets to cut friction, deepen and diversify markets.

"Innovation in the capital market must lower friction and compliance cost for issuers, investors, and intermediaries while managing the risk. It should also provide a diverse range of opportunities depending upon risk-appetite. That is the bar we must set for ourselves," the Sebi chief said.

Pandey said that the regulator has worked to shorten IPO timelines, enable safeguards such as blocking of funds and direct payout and established digital processes that reduce cost and time for everyone.

He said that the UPI valid sub-system for SEBI registered intermediaries will soon be rolled out as a verified payment channel to protect investors in the securities market from cyber frauds. "These steps matter to first-time investors and to institutions that manage risk," Pandey said.

Also Read: BSE, Angel One shares slide up to 6% after Sebi chief calls for longer equity derivative tenures

On IPOs

Pandey also said that the pre-listing information is often not enough for investors to take an investment decision and urged for looking at ways to create a regulated venue where pre-IPO companies can choose to trade, subject to certain disclosures.

Pandey also emphasized the role of transparency that is important to bring new investors to the capital markets.

"As a system, we need to push for clearer communication with investors, faster rumour verification, and incentive disclosures so investors know who gets paid, for what, and when. If a SEBI-registered intermediary offers services outside SEBI’s ambit, it must say so upfront, along
with the risks and recourse. Transparency attracts long-term capital, keeps capital durable, and widens retail ownership," he added.

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