Sebi allows physical delivery in derivatives

Capital market regulator, Sebi, today said that it has decided to allow physical delivery in the derivatives segment but no timeline has been fixed for this.

"The Sebi Board has decided to allow physical delivery in the derivatives segment. There has been a demand for this for some time now and the Board felt that there was some substance in this," Sebi Chairman, C B Bhave, told reporters here today.

Sebi will discuss with the stock-exchanges and institute an appropriate mechanism for physical delivery in derivatives market, he said.

"This issue would now be discussed with the stock-exchanges and an appropriate mechanism for physical delivery in derivatives would be evolved," Bhave said. "There will be a need for proper risk-containment systems," he added.

Long-term contracts in derivatives, now only for three-years, would be possible for five-years, he said. "The Board felt that the time is right and we have seen volumes build-up there. Long-term contracts up to five-years will also be possible," he said.

The Sebi Board, in its meeting today, also took a decision that in the primary issuance process, Qualified Institutional Buyers (QIBs) will be required to pay 100 per cent money in line with other investors on or after May 1 this year, Bhave said.

Asked about life insurers replying to Sebi's notice to them on the unit-linked insurance plans (ULIPs) issue, Bhave said that insurance companies have sent in their replies and Sebi would go through their replies. "We will consider their replies. Any action we take will be made public--presently, their replies are under our consideration," he said.

The Sebi Chief also said that the choice remained with issuers whether to adopt the French auction route for their issuances or not. "It (French auction) is not prescribed by Sebi," he said.

Asked whether Sebi would intervene in case of a war of words between corporates during open offers as was evidenced in a couple of instances recently, Bhave said that Sebi cannot regulate things out of the market.

"Whenever there is corporate rivalry, an exchange of words is unavoidable. Sebi cannot regulate out of market but if any regulation or law is violated, then we will look into it," he said.