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Sebi to ease norms for MF in derivative investment by raising cap on F&O

Sebi has also reached out to other regulators including RBI, IRDAI asking them to consider relaxing the derivative investment rules for institutions under their jurisdictions

Pavan Burugula  |  Mumbai 

Sebi. (Photo: Kamlesh Pednekar)
Sebi. (Photo: Kamlesh Pednekar)

Market regulator the (Sebi) is planning to ease the norms for (MF) participation in the derivative According to the sources, the regulator is considering measuring such as, allowing domestic funds to 'write' options and increasing cap on The move is a part of Sebi’s efforts to deepen the Indian derivative

Until now, has adopted a cautious approach towards allowing to invest in derivatives since the asset class is considered highly risky compared to equities or debt. Currently, there are several restrictions on MF investments in equity derivatives. For instance, current rules permit to invest in derivatives only for hedging purposes. The extent of exposure that an MF takes for hedging purposes cannot exceed the equity exposure that is being hedged. are not allowed to write options and the total equities, debt and derivative exposure of a MF cannot exceed the (AuM) value. However, with the improved liquidity and stable settlement systems, the market regulator is of the view that more leeway could be provided for MFs in derivative

Providing a breather

  • to ease norms for MFs investing in derivatives
  • The regulator is mulling to increase the cap on by MFs and may allow them to write options
  • The move is part of Sebi’s efforts to deepen the Indian derivative markets
  • Currently,MFs contribute to only 0.4 per cent of the overall derivatives volume
  • has also reached out to other regulators, including the and the RBI, seeking their help in easing the regulatory framework for domestic institutions investing in derivatives


“The issue was discussed in the last board meeting and Sebi is currently reaching out to various stakeholders for views on the matter. The idea is to open up the derivative markets for MFs in a gradual manner. The idea is to encourage more MF participation in derivative markets without making them excessively risky products,” said a source.

Sebi has been making several efforts to deepen the Indian derivative markets. Sources say, Sebi has also reached out to other regulators including (RBI) and (IRDAI) asking them to consider relaxing the derivative investment rules for institutions under their jurisdictions. While all the insurance companies are regulated by IRDAI, (NBFCs) and banks are regulated by

“Various measures would be required in order to create a more balanced participation in derivatives. Therefore, there is need to relook at the regulatory restrictions placed on domestic institutions especially in light of the fact that Indian markets already have a robust risk management framework in place,” memorandum of Sebi board.

In developed markets, institutions such as MFs, and Insurance companies are big players in the derivative markets. However, Indian is largely dominated by brokers and retail investors. While proprietary trades account for over 40 per cent of the total derivative volumes, retail investors account for another 24 per cent. account for only 0.4 per cent of the total volumes.

First Published: Tue, May 22 2018. 23:27 IST
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