By Jayshree P Upadhyay and Ira Dugal
MUMBAI (Reuters) – India’s markets regulator will tighten by-product guidelines to extend entry boundaries and make it dearer to commerce because it tries to restrict retail buyers speculating on dangerous contracts, mentioned 4 sources with direct information of the matter.
Securities and Exchange Board of India (SEBI) will restrict the variety of choices contract expiries to 1 per change every week and almost triple the minimal buying and selling quantity, the sources mentioned, in guidelines just like these proposed in July, regardless of pushback from merchants and brokers.
But SEBI will overview a few of its earlier proposals to extend margin necessities and to observe intraday buying and selling positions, based on the sources.
Authorities have been flagging dangers from speculative buying and selling by retail buyers, who’ve been funnelling financial savings into India’s booming choices market.
The month-to-month notional worth of derivatives traded was 10,923 trillion Indian rupees ($130.13 trillion) in August – the best globally, information from the regulator confirmed. The largest share of buying and selling is in choices contracts linked to inventory indices like BSE Sensex and NSE Nifty 50.
The share of particular person buyers in index choices has risen to 41% within the monetary yr ended March 2024 from 2% six years earlier, regulatory information confirmed.
“A key objective was to put an end to the large and rising speculative volumes in index options contracts close to expiry,” mentioned the primary of the sources, who all declined to be recognized as the selections aren’t but public.
“The regulator believes that this warrants additional measures both for small investor protection and for ensuring continued systemic stability,” the supply added.
The last guidelines will likely be launched this month by a round, the sources mentioned.
The particulars haven’t been reported beforehand. SEBI didn’t reply instantly to a request for remark.
The steps observe a rise in tax on by-product transactions in July supposed to cut back the participation of retail buyers within the choices market.
India’s finance minister flagged considerations in May that any unchecked explosion of retail investor buying and selling in derivatives might create future challenges for the markets, investor sentiment and family funds.
SOCIAL MEDIA CAMPAIGN
The regulator acquired almost 10,000 feedback on its July proposals from merchants and different market members after a social media marketing campaign, the primary supply mentioned, including a big majority of them have been from merchants and brokers who argued the regulator’s new guidelines would hit buying and selling income and liquidity.
“There was a social media campaign to overwhelm the regulator with the responses,” the supply added.
The last guidelines will ask exchanges to cut back the variety of contract expiries to 1 every week per change from a number of expiries at present that give merchants the chance to invest extra, mentioned the 4 sources.
SEBI will even increase the minimal buying and selling quantity to just about 1.5 million rupees to 2 million rupees ($18,000-$24,000) as proposed within the July session paper from 500,000 rupees, the second of the sources mentioned.
In its proposals, the regulator had steered increased margins for contracts expiring on the identical day, however suggestions from the nation’s inventory exchanges and market members mentioned this could be tough to implement.
This was a real concern and the regulator would tweak the proposed hike in margins, the sources mentioned.
Exchanges and depositories additionally raised considerations over intraday monitoring of positions in index derivatives as a consequence of an absence of technical functionality and the regulator may not insist on it for now, the third of the sources mentioned.
($1 = 83.9370 Indian rupees)
(Reporting by Jayshree P Upadhyay and Ira Dugal in Mumbai; Editing by Jamie Freed)
