F&O expert group set up by Sebi meets Monday for industry proposals

An expert panel set up by the Securities and Exchange Board of India (Sebi) to review norms for the flourishing equity derivatives segment will meet on July 15 to take on board suggestions by various market participants, said sources. The proposed changes could lead to an overhaul of the current offerings and framework, they added.
 

Last month, Sebi constituted a working group chaired by G Padmanabhan, former executive director of the Reserve Bank of India, to suggest measures to enhance investor protection and risk management in the derivatives segment.

In its meeting scheduled for Monday, the working group will consider suggestions from various stakeholders, including brokerage firms and market infrastructure institutions such as stock exchanges and depositories, said a member of the committee.
 

The Association of National Exchanges Members of India (Anmi), a broker body, will be submitting its suggestions to the
committee. The proposals include review of weekly options, reducing multiple expiries during a week, limiting strike prices, intra-day monitoring of position limits, hiking margin requirements, and upfront collection of option premiums. The body plans to submit a seven-point proposal on these lines, said people close to the development.

The deliberations of the working group will later be put forth for public consultation before a final approval by the Sebi board.

At present, several index derivatives by both the exchanges expire on different days spread through the week. These option products see elevated volumes on the day of expiry.
 

In its last board meeting, the market regulator approved more stringent eligibility criteria for single stocks in the F&O segment. The changes will result in churn of over two dozen stocks in the derivatives. The move will also increase the number of scrips in the F&O segment from the current list of 182 stocks.
 

Retail participation in the F&O segment has grown multifold in recent years, even as a study by the market regulator shows that nearly 90 per cent of them incur losses.
 

“These are preliminary suggestions. The working group will discuss all aspects before making any final recommendations to the board. Suggestions from all stakeholders will be considered,” said a person with direct knowledge of the matter.
 

He added that the group will not take extreme steps like limiting weekly options contracts to one per exchange as it may have a severe impact on liquidity.
 

The review comes at a time when RBI Governor Shaktikanta Das, Sebi chairperson Madhabi Puri Buch, and Chief Justice of India DY Chandrachud have cautioned against market “exuberance”.
 

Das had indicated that Sebi and the RBI were monitoring the rising volumes in the derivatives segment. He raised concern that volumes in the derivatives market were perhaps larger than the nominal GDP of the country.
 

Buch too said there were concerns about household savings flowing into such non-economic activities and investors borrowing money to participate in the segment.