Best of BS Opinion: Why Sebi needs to do more on derivatives trading

Today's opinion page discusses the recent clampdown on Jane Street, government transparency, India's milk market, and the future of Mumbai's real estate because of climate change

Hello and welcome to BS Views, our newsletter that sums up today's opinion page.  The Securities and Exchange Board of India (Sebi) has moved against Jane Street, alleging manipulation in the derivatives segment. While it is too early to say whether this was merely arbitrage or manipulation, the fact remains that the nominal turnover of the derivatives market is 350 times that of the cash market, making it the world's largest. This is not normal by any account, says our first editorial. Moreover, studies by Sebi have suggested that over 90 per cent of retail traders lose money in the F&O segment. No wonder, then, that the regulator has warned retail traders of the risks of such trading. However, Sebi must mind that more curbs may make it harder for the F&O market to fulfil useful purposes like ironing out price imperfections. Also, if market mechanisms and regulations focus on improving cash market turnover in both debt and equity markets, the imbalances may start to correct.

 

The Union government seems to be taking steps towards understanding actual difficulties faced by the citizenry rather than making policy ensconced in their offices, says our second editorial. Cabinet Secretary T V Somanathan is pushing for bureaucrats to meet with people outside of government but who may wish to meet regarding work involving their ministries. This will also help officials clarify misunderstandings about government policies. Significantly, such meetings should take place in the office, he suggested. While the move is a progressive one, it has some limitations. Past experience with scams has shown that the travails of bureaucrats involved in these issues – even after retirement - have stifled decision-making. It would be a good idea to introduce keeping a “memorandum of conversation” or “memcon”, a record of such conversations that is kept in official files.

 

When the Bard pondered what was in a name, little could he have imagined his question would one day apply to that common animal product known as milk. Our columnist Surinder Sud ponders the many varieties of beverages that currently go by the name of milk, such as almond, soy, oat, et al, but questions whether these deserve the epithet that the bovine version has long been known by. While milk from animal sources has been around for millennia and is almost a complete food in itself for human growth, he points out that dairy scientists have reservations about labelling its vegan counterpart with the same tag. Estimates put the size of India’s vegan milks' market at about $855.51 million, and is projected to hit $2.16 billion by 2033. The global market is much bigger, at $19.67 bn in 2023. Clearly, these vegan alternatives are here to stay, and grow. What they should be called, however, remains an open question.

 

Debate around decarbonisation has reached a point where estimates now hover around a high emissions scenario. This could have severe repercussions for Mumbai, warns our columnist Ajay Shah. In a high-emisisons scenario, Mumbai's sea level could rise about 25 cm by 2050, but factoring in that Mumbai is sinking by about 2 mm annually, this means the Maximum City's sea level could rise by about 30 cm. This raises fears of coastal flooding and worsening urban infrastructure, all of which will hurt Mumbai's real estate market, with adverse events rippling through asset prices and credit risk. The Reserve Bank of India is close to releasing rules for banks and financial institutions regarding the disclosure and management of climate change risks, which will reshape incentives for investors. Similar climate change rules need to be woven deeply into financial regulation all across the financial system, he says.

 

US President Donald Trump struck a triumphalist note announcing the "obliteration" of Iran's nuclear assets recently, a view that was quickly repudiated by his own Defense Intelligence Agency (DIA). Soon enough,  Central Intelligence Agency (CIA) director John Ratcliffe cast doubt on the DIA’s assessment, insisting that the sites had been “severely damaged". These events, writes Scott Anderson in his review of Tim Weiner's THE MISSION: The CIA in the 21st Century, showcase the politicisation of America’s pre-eminent intelligence agency, a trend that is likely only to accelerate with Trump in the White House. Weiner hammers on an agency that seems to be repeatedly blinded by its sense of American supremacy, despite being caught off guard time and again. While the book is exhaustive and prodigiously researched, Anderson cautions it is also curiously ungainly.