Sebi mulls reforms in exchange-traded derivatives to ease compliance

Regulator seeks to simplify compliance requirements, remove duplicative provisions and align derivatives rules with evolving market practices

The Securities and Exchange Board of India (Sebi) on Thursday proposed a series of changes to the regulatory framework governing exchange-traded derivatives, including commodity derivatives, with the aim of simplifying compliance requirements, removing duplicative provisions, and easing the regulatory burden on exchanges.

 

Among the key proposals, Sebi has suggested removing the concept of close-to-the-money (CTM) option series and the related norms for options in goods in commodity derivatives. The regulator noted that leading international commodity exchanges do not follow the CTM framework, as it complicates the exercise mechanism for market participants and makes it difficult for them to assess the intrinsic costs associated with such options.

 

Sebi has also clarified that while stock exchanges will continue to remain responsible for monitoring position limits, they may outsource the operational aspect of such monitoring to clearing corporations through formal agreements clearly defining roles, responsibilities, and commercial arrangements.

 

In another relaxation, Sebi proposed that exchanges may advance the expiry date of contracts — in cases where the physical market remains shut on the expiry day due to sudden events such as festivals or strikes — with prior approval from the managing director. Exchanges would only need to provide adequate notice to market participants. Currently, exchanges are required to give a 10-day notice before changing expiry dates.

 

The regulator has further proposed easing the base minimum capital (BMC) requirement for brokers. Under the current framework, brokers without nationwide trading terminals are required to maintain deposits equivalent to 40 per cent of the BMC requirement. Sebi said the provision has become less relevant as most brokers now operate on a nationwide basis.

 

Sebi has also proposed removing the requirement for exchanges to seek prior intimation to the regulator before imposing stricter exchange-level position limits.

 

In addition, the regulator has incorporated amendments issued through various circulars into the draft framework. These include provisions related to the frequency of product advisory committee (PAC) meetings, eligibility norms for launching options on commodity futures, and conditions governing derivatives contracts on commodities.

 

The proposed overhaul also includes a restructuring of derivative segments by consolidating product-specific categories into broader segments. Under the proposal, index futures, index options, stock futures, and stock options would be merged into a unified “Equity Derivatives Segment”. Similarly, currency futures and options, including cross-currency contracts, would be brought under a single “Currency Derivatives Segment”, while interest rate futures across tenors would be grouped under an “Interest Rate Derivatives Segment”. 

Easing compliance

• Close to the money option series proposed to be deleted
• Exchanges may outsource position limit monitoring to clearing corporations
• Relaxation in expiry date change norms in case of sudden events like strikes, with prior approval from exchange’s MD 
• Base minimum capital requirements eased as most brokers now have nationwide presence
• Measures to reduce compliance burden, simplify regulations by merging sections or removing obsolete norms