Sebi mulls derivative push, no-frills a/c for market growth

With the number of new investor accounts falling by nearly half in the last fiscal and the trade volumes nearing a plateau, regulator Sebi is mulling various steps to deepen the Indian stock market this year.

The measures are being undertaken to launch new products in the derivatives segment, already the mainstay of the market in terms of volumes, and introduce no-frills trading accounts to attract new investors to cash market as well.

While the cash segment of the stock market involves sale and purchase of shares of listed companies, the derivatives trade provides for trade in contracts whose price is derived from change in the value of one or more underlying assets. In the Indian capital market, derivative contracts are available with underlying assets like individual stocks, stock indices, currencies, and interest rates, among others. However, trade volumes have been relatively sluggish in most of the non-stock derivatives and the steps would be taken this year to boost these segments, a senior official said.

For the cash market, Sebi expects the newly proposed tax-saving equity scheme to provide a boost and could soon introduce a no-frills trading account for the benefit of new investors interested only in basic trading activities. During the just-ended financial year 2011-12, a total of about 9.5 lakh new investor accounts were opened in the country, which is almost half of about 19 lakh new accounts opened during the previous fiscal, 2010-11.

Currently, India has about two crore demat accounts, which are mandatory for investors to trade in the market.

Among other steps, Sebi would look at employing latest technology and developing a team of officers with key skills in derivatives during the current fiscal.

The proposed initiatives for 2012-13 include introduction of different derivative products suitable for Indian markets, as well as work towards broadening the participation in the securities markets.

With a view to introduce new products, especially in the derivatives segment, Sebi is also reviewing the current risk management framework for exchanges, including increasing efficiency of settlement process and margining system. Sebi would also put in place the risk management and risk containment measures for derivatives on volatility, and introduce new derivatives for hedging interest rate risk. While it has already issued circulars on two-year and five- year cash settled interest rate futures, a framework for cash settling interest rate futures on 10-year GoI (Government of India) security would be laid down in consultation with the RBI.

Besides, it plans to introduce the concept of clearing members in the cash segment as well. At present, only the derivatives segment has got clearing members, who can execute trades for themselves as well as for their clients.