The derivatives market review committee today recommended to the Securities and Exchange Board of India (Sebi) to have option contracts with longer tenure, simple margin requirements, physical settlement of securities and programme trading, among others.
Apart from doing a status-check on the measures taken to strengthen the derivatives segment, the committee report, which was released today, proposed various other steps to deepen the market, enhance liquidity and increase participation.
The report also recommended that the market regulator widen the range of ‘new products’, including F&O contracts on volatility index and options on futures. That apart, the derivatives panel has proposed exchange-traded credit derivatives, exchange-traded third party products and over-the-counter (OTC) products.
Besides these recommendations, the panel wants empowerment of exchanges as a consequence of moving from being rule-based to principle-based bodies and develop themselves into self-regulatory organisations.
Recommendations have been made on operational issues such as revision of eligibility criteria for introduction of F&O on stocks and indices, upward revision of position limits and revisiting the securities transaction tax (STT). The panel has also suggested introduction of mini-contracts on stocks wherein small investors can easily participate. Currently, there are mini-contracts on indices such as Nifty.
On the proposal to introduce long tenure option contracts, experts say that such a product will help investors as they can take a long-term view. On the overall proposals, they are of the view that, if implemented, they will limit the possibility of manipulation and also curb excessive speculation.
Sebi had formed the committee comprising ISB dean Rammohan Rao, Prakash G Apte, Nachiket Mor, Chitra Ramakrishna, Deena Mehta and Dr Sanjeevan Kapshe in 2007 to look into the developments in the derivatives market.
