SEBI looking to reduce concerns around F&O, says Ananth Narayan

Around two years ago, SEBI identified that many AIFs were structured in ways that bypassed critical regulations like FEM-NDI, RBI regulations, and IBC. After this, Narayan added that a structured set of "do’s and don’ts" was introduced, created in collaboration with the Standards Forum for AIFs and SEBI.

Even as the market regulator is still judging the impact of the new F&O regulations, it is looking at ways to grow the ecosystem so it contributes to price discovery, market depth, risk management, and ultimately capital formation, said Ananth Narayan, whole-time director of the Securities and the Exchange Board of India.

"We will look to improve the risk metrics in F&O and consider both tactical and structural steps to reduce the risk and fear of any manipulation across cash and derivative markets," Narayan said at the Mint's BFSI Summit and Awards.

On October 1, SEBI issued a new framework for the index-derivatives segment, including reducing contracts with weekly expiries, increasing the contract size and charging additional margin for contracts with zero-days to expiry (0DTE). The new norms took effect from November 20 but their impact was felt from the beginning of December.

Alternative Investment Funds (AIFs) 

Around two years ago, SEBI identified that many AIFs were structured in ways that bypassed critical regulations like FEM-NDI, RBI regulations, and IBC. After this, Narayan added that a structured set of "do’s and don’ts" was introduced, created in collaboration with the Standards Forum for AIFs and SEBI.

Giving an example of specific regulations in that he said, AIFs with significantly large (or even single) investors are required to adhere to the principle of ensuring that the investor is not prohibited from making the ultimate investment directly. Then, both the assets of AIFs and the units of investors are now largely in dematerialized form – a significant benefit to investors, while improving regulatory visibility all around, Narayan added.

Now the regulator has implemented certain regulations for ease of doing business, Narayan said. This includes, Tranching, a route, previously misused to bypass RBI rules, is now allowed under specific conditions for certain investors. AIFs can pledge their equity stakes in infrastructure projects, enabling those projects to raise debt. And, AIFs now have more options to manage investments beyond their fund’s expiration.