No more actions on derivatives on anvil, says SEBI WTM

The capital markets regulator is not planning any more measures to curb or restrict activity in derivatives, SEBI's Wholetime Member Ananth Narayan said on Saturday.

An expert group under former RBI executive director G Padmanabhan continues to work on bettering the system, and some moves on ease of doing business and better risk management are being mulled, he added.

"At this point in time, there is no thought of SEBI taking any further steps in this particular regard," Narayan said, addressing an event organised by SEBI-promoted NISM here.

He also made it clear that the SEBI is not mulling any steps on "suitability and appropriability", which will determine who can trade in the derivatives market.

It can be noted that in November, SEBI imposed a set of restrictions to curb highly speculative trades in the futures and options market after data pointed out that retail investors lost money in 93% of the trades over the last three years.

Making it clear that SEBI has nothing against derivatives and that they help in price discovery and deepening the market, Narayan assured that the tweaks will be introduced only after consultations.

Some of the measures being discussed within the market regulator include steps to better measure risk in the derivatives market.

"What you need ideally is that the volumes in the cash market should be nice and liquid, and there should be depth in the market. And likewise, the volumes in the derivative market should also have depth, should also have good volumes," he noted.

It is important to make sure that there is some kind of connectivity in the liquidity of the two markets, he said.

"What is very clear to us is the current way of measuring open interest as notional of futures and notional of options is simply not right. It gives a very, very wrong picture, and there is a need to debate how we move forward into a more meaningful metric," he said.

Narayan said the SEBI is also considering linking market-wide position limits to delivery volumes.

Linked to the same, it is considering a revision of index training limits imposed during the COVID pandemic to control volatility, the WTM said.

SEBI is also looking at the question of having indices with futures and options with very high concentrated weightages of some specific stocks from a perspective of ensuring trust in the system, Narayan added.

"Often in social media, we hear murmurs that something wrong is happening, especially in index trading. That there is some manipulation happening in the cash market, which is leading to some kind of activity in the derivative markets, and overall, it is creating...either huge volatility or no volatility and that it is being done as a manipulation for some people to profit," he said.

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

"...these are some of the things which are on our mind. What you will notice is all of these are largely -- either ease of doing business in terms of increasing limits, increasing the scope of what can be done, or in the nature of making sure we all measure our risks better," he said.