Sebi plans longer-tenor derivative products: Chairman Tuhin Kanta Pandey

Sebi chairman Tuhin Kanta Pandey said the regulator will consult stakeholders on extending the tenor of derivatives and hinted at a pilot project for regulated pre-IPO trading

The Securities and Exchange Board of India (Sebi) plans to pivot towards longer-tenor derivatives products to ensure they serve their intended purpose of hedging, said chairman Tuhin Kanta Pandey on Thursday. He called for greater “quality and balance” in the derivatives market, where trading volumes are disproportionately higher than the underlying cash segment. 

Pandey also signalled the possibility of a pilot platform for pre-IPO companies. 

Speaking at the 22nd edition of Ficci’s Annual Capital Markets Conference (Capam), the Sebi chairman said: “We have often stated that equity derivatives play a crucial role in capital formation, but we must ensure quality and balance. We will consult with stakeholders on ways to improve, in a calibrated manner, the tenor and maturity profile of derivative products, so that  they better serve hedging and long-term investing.”  His remarks come against the backdrop of mounting losses for individual investors in derivatives trading and allegations of manipulation by global high-frequency trading firms. 

 

Pandey’s comments sparked speculation that Sebi may soon discontinue weekly derivatives contracts, triggering a decline of 7.7 per cent in BSE shares. Short-term contracts account for the bulk of exchange volumes. Pandey, however, ruled out such a step in the near term. 

At the same event, Sebi Whole-Time Member Ananth Narayan G said: “We are considering ways to improve the tenor and maturity profile of derivative products, so that they better support sustained capital formation and foster all-round trust in the ecosystem. This may also need to be achieved in a calibrated manner, giving the system adequate time to adjust.” 

Pandey also stressed the need to deepen the cash equities market, where daily traded volumes have doubled in the past three years, though “much more needs to be done”.

 

He further hinted at a pilot project for pre-IPO companies. “In a booming IPO market, investors are eagerly anticipating what is next, yet pre-listing information is not enough for investors to make an investment decision. Can we think of an initiative, on a pilot basis, for a regulated venue where pre-IPO companies can choose to trade, subject to certain disclosures?” he asked.

 

A government official present at the conference said the Ministry of Corporate Affairs (MCA) had received details of such a proposal from Sebi. The move is expected to bring trading in unlisted markets under a formal mechanism, enabling tax collection on such transactions. The project involves unlisted companies that come under the MCA.

 

A similar mechanism had been flagged by Pandey’s predecessor in January as a way to curb grey market activity.

 

Pandey also invited suggestions on facilitating fundraising, disclosures, and investor onboarding. He asked the industry to identify emerging products and asset classes that could boost demand and supply of capital.

 

In his address, the Sebi chairman highlighted the need for addressing the growing role of artificial intelligence (AI) in customer engagement, risk assessment and fraud detection “We have to think of AI as an assist, not a substitute for judgment,” he said.

 

Pandey also called for faster rumour verification and clearer communication with investors.