Gupta Committee Frames 20-Point Questionnaire

Quizzing fund managers on derivatives trading

The Securities and Exchange Board of India (Sebi)-appointed 20-member derivatives committee headed by L C Gupta has drafted a questionnaire, which will be circulated among the potential users of index futures.

The 30-point questionnaire will be circulated among the potential users of index futures like mutuals funds, financial institutions, brokers and foreign institutional investors (FIIs). It has sought responses by May 20.

The committee has asked their views on the infrastructure prerequisites, benefits accruing out of the introduction of futures and options (F&O) and basic risk hedging facilities such as F&O. The users have also been asked to suggest the minimum contract size, the maturity period and the tick size for F&O contract.

The L C Gupta Committee held its third meeting yesterday and the next meeting of the committee will be held on May 29, which will be attended by the representatives of various fund managers.

The questions basically makes an attempt to ascertain the knowledge-base of local market players regarding to derivatives trading. On the risk front, the market players have been asked to state the cause of Barings collapse at the international markets.

According to the L C Gupta, the exercise has been taken to clear apprehensions in the minds of the market players regarding the ill-effects of the introduction of derivatives trading in the country.

The users are also asked key questions such as the types of instruments they trade in, the kind of positions they take, the current methods adopted by the users to hedge risk.

Yesterday's meeting took up the issue of clearing corporations, with members raising objections both in favour and against the concept of a single clearing corporation.

"The idea is to have a central clearing corporation as is Western countries. What we are aiming at is a clearing corporation which will be semi-autonomous so that there will be minimal interference from the stock exchanges concerned," informed a committee member.

The entry norms for brokers was also taken up for discussion during the meeting. "There is a fear that if high net worth criteria is imposed, only a handful on Indian players will be able to meet the demand. This could see the benefits of introducing the new system being snatched away by big players like the FIIs," said another committee member.

Some of the committee members were of the view that there should be different capital adequacy norms for brokers and dealers, it was learnt. The committee also discussed the issue of risk management and margins.