Sebi board nod for new derivative products

Securities and Exchange Board of India (Sebi) today approved the introduction of new derivative products - a step intended to expand the domestic market and make it largely onshore and safe for investors.

The Sebi board, which met in Chennai, approved introduction of seven new derivative products based on the interim recommendations made by a committee on derivatives headed by Prof M Rammohan Rao. 

Sebi chairman M Damodaran said: "What we are trying to do is to see that the Indian market becomes largely onshore, and that parts of the market do not continue to be (indefinitely) offshore. One of the steps would be to add more products in the Indian market." 

The new products will relate to mini-contracts on equity indices, options with longer life/tenures, volatility index and F&O (futures & options) contracts, options on futures, bond indices and F&O contracts, exchange traded currency (foreign exchange) F&Os, and exchange traded products to cater to different investor profiles. 

"We have decided that we will have a wider consultations process before finalising the specifications of these products. Information about the products will be put on the Sebi website for wider consultation before the introduction of these products by the exchanges," Damodaran said. "This will help us know whether the market needs it as well as the lead time required for introducing the products."

Following is the press release issued by Sebi today:

SEBI board approves new derivative products

As a step intended to progressively encourage markets to move onshore, the SEBI Board, in principle, approved introduction of new derivative products for the Indian market based on the interim recommendations made by the SEBI Committee on Derivatives headed by Prof. M. Rammohan Rao. The products will be introduced under suitable regulatory framework in due consultation wherever necessary with other regulatory authorities.

These new derivative products will be relating to:

(1) Mini-contracts on equity indices,

(2) Options with longer life/tenure,

(3) Volatility index and F&O contracts,

(4) Options on Futures,

(5) Bond Indices and F&O contracts,

(6) Exchange-traded currency (foreign exchange) Futures & Options, and

(7) Introduction of exchange-traded products to cater to different investment strategies.

It is expected that these new derivative products will provide investors with a larger range of risk mitigation products and create more activity in the Indian onshore markets. These products are also expected to bring transactions based on private-synthetic products to an exchange-traded transparent mechanism with appropriate regulatory supervision.

The Board also mandated that a wider consultative process be followed before finalizing the specifications of these products and information about the products be disseminated to the market participants. However, the introduction of such products will depend on the product design, risk mitigation features and conformity to regulatory requirements.

In addition to these interim recommendations, the SEBI Committee on Derivatives headed by Prof. M. Rammohan Rao is expected to finalize its recommendations on suitable OTC derivative products for the Indian markets. As soon as these recommendations are available, after due consultation, the SEBI Board will take a decision on these products as well.

Mumbai
November 14, 2007