Sebi is looking at increasing the tenure of equity derivatives after discussion with stakeholders, and a consultation paper in this regard will be initiated, Chairman Tuhin Kanta Pandey during FICCI's 22nd annual Capital Markets Conference in Mumbai on August 21, triggering a sharp fall in key shares like BSE, Motilal Oswal and Angel One.
The chairman added that longer tenure derivatives is currently a 'thought process' and stressed that industry consultation would be done before any decision. "All this will be done in consultation, in what form, how, when... Yes (there will be a consultation paper). I can't tell you when, but that is the thinking process we have," Tuhin Kanta told reporters on the sideline of the event.
The move can potentially have a significant impact for the equity market going forward, and the regulator assured there will be consultations, and Sebi is right now only proposing an idea for deliberation.
"Improving the tenure (of the F&O contract) really means whether we can have more longer-term derivatives," said Tuhin Kanta, adding, "Qualitatively we have to see (the duration of the contracts), but we have to calibrate it. My statement says in a calibrated manner. This is only in-principle we're stating, on what we should be doing."
The equity derivatives arena has been in the focus in the recent past, with the regulatory body taking various steps to curb the quantum of trading. For instance, Sebi has allowed only one weekly contract per exchange while also fixing the contract expiry days. Some market participants fear any move to increase the tenure of derivative contracts can impact volumes for BSE and broking companies. Shares of BSE and Angel One were lower by 5 percent following the comment.
Sebi chairman also said there is a need to ensure quality and balance in the F&O segment. "Equity derivatives play an important role in capital formation, but we must ensure quality and balance. We will consult with stakeholders on ways to improve in a calibrated manner the tenor and maturity profile of derivative products, so they better serve hedging and long-term investing," said Tuhin Kanta.
Sebi's approach in relation to equity derivatives have been thoughtful and consultative, he added. The chairman also said the regulator is looking at ways to improve the maturity of equity derivative contracts and deepen cash market volumes.
"We are looking to deepen the cash equities market... volumes in the cash markets have grown rapidly, doubling in terms of daily trading volumes over a period of just three years. However, much more needs to be done," said Sebi Chairman.
The regulator has been focusing on safeguarding the interests of retail investors in the securities market by implementing measures to curb risky trading, and reduce losses for retail investors, particularly in the futures and options (F&O) segment.
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