 "Sebi 'watchful' of manipulative practices, trades in index heavyweights")
The Securities and Exchange Board of India (Sebi) is “watchful” of instances where market players try to manipulate one segment in order to profit in another, specifically when a few stocks have high weightage in the index, said Sebi’s whole-time member Ananth Narayan on Saturday.
The official was addressing concerns of possible manipulation in the cash market which could lead to volatility or activity in the derivatives market to profit some people.
“When you have indices which have very huge weightage on a few handful of stocks, even if there is no manipulation happening, the fear that some people might be manipulating the cash market in order to derive or drive the derivative markets and increase volatility is not healthy,” said the Sebi official.
While practices of taking bets in both cash and derivatives markets is not unusual as it is used for hedging or higher profits, the market regulator is watchful of any ‘pump and dump’ under the garb of such trades.
“A burst of huge activity by a large player in one market in order to profit in the other market— a lot of buying followed by a lot of selling in order to profit in the derivative market. Likewise, marking the close where just at the time of expiry, if there is a lot of activity in the cash market to try and get a particular close, these are standard manipulative practices that every regulator in the world watches out for,” said Narayan.
However, Narayan added that the regulator may not bring any immediate steps on the same, but is discussing these concerns and will move forward only after consultations.
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“One of the questions that we have is when you have indices trading in futures and options, purely for trading in F&O, not for benchmarks, for mutual funds, not for anything else, should there be restrictions on how much of weightage the top stock, the top three stocks, etc. should have. Now, this is a matter of discussion,” he added.
A majority of the steps taken by Sebi to curb investor frenzy in the index derivatives have taken effect and are yielding results by reducing volumes, though market players believe trend would firm up in the next few months when all six steps are in place. The market regulator may soon float another consultation paper on risk metrics called futures equivalent to measure correct risk in single stock futures and options.
Narayan also applauded the efforts of exchanges, clearing corporations and other market infrastructure institutions in surveillance of such practices.
“Have some trust and faith in the ecosystem. It is not so easy to manipulate things in the market here. We are not saying we are perfect, we are learning all the time but we are not closing our eyes either. We are absolutely watchful,” said Narayan.