The Securities and Exchange Board of India`s (Sebi) decision to clear the LC Gupta committee report has been welcomed by the market players. While the mutual funds see this as an opportunity to hedge the risk on their portfolio, the brokers have welcomed the move saying this will further improve the overall development of the capital market.
Mutual Funds have welcomed the decision to allow them to use derivatives as a hedging instrument. It is a welcome step and help us diversify risk. It will also improve our yields and help us offer better returns to investors, UTI chairman GP Gupta told Business Standard.
Ajay Srinivasan, managing director of the newly launched Prudential ICICI AMC, said the fund managers would get a hedging mechanism with the introduction of derivatives trade.
It is a radical first step taken by the regulator which is in tune with the changes with the capital market. The mutual funds will now be able to make best use of the excess liquidity at any given point of time, said Ajai M Kaul, president and country manager, Alliance Capital.
According to Anand Rathi, senior BSE governing board director, BSE will take at least three months to get prepared for launching derivatives trading if it has to start now. Rathi heads the committee at BSE which is looking into the intricacies of BSE`s plan to commence derivatives trading.
We need to train our staff for derivatives trading. At the same time, Sebi also needs to send some of its officials for training to markets where they actually have derivatives trade. It will take at least six months for any exchange to start trading in derivatives as bourses have to make their own rules and regulations and go to Sebi for clearance, he said.
Kaul pointed out that in the absence of any derivatives products, tracking of index funds becomes a difficult job. With derivatives products, it would be possible to narrow down the error in tracking index funds, Kaul said.
Commenting on the development, chief investment officer with Jardine Fleming India Asset Management U R Bhat said it would give an excellent hedging tool.
Apart from being an hedging tool, introduction of derivatives trading will also ensure that punting in the market becomes a clean game. This will clearly demarcate between speculators and investors in the market, Bhat said.
However, he said that in the immediate future, the speculative volume in the cash market will dry out which could be a bad sign.
C S First Boston, which is one of the largest players in derivatives trading globally, will seek to be one of the key participants at the Indian markets. KR Bharat, managing director, C S First Boston, said the fine print related to derivatives trading would be looked into. This is something we had been waiting for a long time for. It will definitely aid in improving the liquidity at the markets,`` he said.
Dennis Grubb, who was a member on the L C Gupta Committee, lauded Sebi for accepting the committee recommendations. Sebi has given a special emphasis on self-regulation by asking exchanges to conduct inspection of its members. The fact that they should certify those dealing in derivatives is also a welcome step. This is an enlightened philosophy brought out by Sebi, he said.
Nikhil Khattau, CEO, Sun F&C AMC said, This is an excellent move from the government. F&C has a dedicated team in London, which looks at derivative structured products. We will obviously be active at the Indian markets but it depends on what are the broad rules allowed for the players.
CEO of Lloyds Securities Sanjay Agarwal said that the introduction of derivatives will help in controlling the volatility in the market.
