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Informist, Tuesday, Jul 30, 2024

 

--SEBI Buch: Indian capital market has lot of global firsts 
--CONTEXT: SEBI chief Buch's comments at capital market report launch 
--Upstreaming of client funds to clearing company is a first 
--Collateral segregation is a global first for our market 
--250-rupee SIP for MF investors to come soon 
--Low transaction costs great enabler of financial inclusion 
--Our market entities architected a great ecosystem using tech 
--Not right for regulator to comment if market is high or low 
--Recent comment by SEBI on valuations only to address risks 
--Coming out very soon with F&O consultation paper
--F&O volume multiplied in last 3 years by unimaginable factor 
--F&O risk still under control but volume now a macro issue 
--F&O intervention not felt earlier as risks under control
--May mandate secondary market ASBA for qualified stockbrokers
--May look to cut margin funding tenure to control leverage

 

By Rajesh Gajra

 

MUMBAI – The trading volume in equity futures and options has multiplied in the last three years by a factor that is "unimaginable", according to Securities and Exchange Board of India Chairperson Madhabi Puri Buch. She was speaking at an event in Mumbai to launch a report on transformative shifts in the capital market through technology and reforms prepared by the National Stock Exchange.

 

Buch said that regulatory intervention in futures and options was not "felt" earlier as there were no systemic risks, with the margins and other measures working fine. The SEBI chief said that even now the risks are under control, but the issue has turned macro. Buch was referring to the unproductive nature of speculative trading from the point of view of economic utility.

 

The SEBI chief was also referring to the regulatory view that a phenomenal rise in equity futures and options volume indicated a level of speculative trading that did not foster capital formation or offered productive economic value. Today, SEBI released the consultation paper on measures on futures and options on indices which it said was aimed at curbing "bursts of speculative hyperactivity in derivative markets, particularly by individual players" which in turn can potentially endanger "investor protection and market stability" apart from detracting from sustained capital formation.

 

To a question on whether curbing futures and options volume will reduce the profitability of a stock exchange that is a corporate entity, Ashishkumar Chauhan, the managing director and chief executive officer, said that profit was largely a by-product for market infrastructure institutions such as stock exchanges, and that NSE was also a regulator in the securities market ecosystem. Chauhan indicated that NSE had no issues with changes with regulations on this front by SEBI.

 

Buch said that the regulator could also look at whether the leverage offered under margin trading finance facility provided by brokerages to cash market clients was adding more risks to the market. She was referring to the long tenures of 3-12 months in the margin trade financing.

 

The capital market report released by the NSE claimed that application supported by the blocked amount facility in secondary market trades had the potential of providing a benefit of 28 bln rupees to investors. The feature is currently optional for brokers to provide to their clients.

 

The SEBI chief said that the optionality has been there for quite some time and that the regulator may consider mandating it for qualified stock brokers "to begin with". There are currently 14 qualified stock brokers on whom stocks exchanges are required by SEBI rules to carry out higher monitoring and surveillance, and impose higher compliance requirements.

 

To a question on whether any securities market regulator should comment on the level of prices in the market, Buch said that it was not right for a regulator to do so. She clarified that in recent months SEBI has been highlighting concerns around market valuations but it was only to address risks from heightened valuations.

 

Referring to the capital market report released by NSE, the SEBI chief said the Indian capital market has implemented a lot of global firsts over the years such as client funds upstreaming to the clearing corporation, segregation of collateral of brokers and clients, and pledging and re-pledging of securities collateral of clients.

 

She said that the transparency and ability to manage risks at granular level were some of the strong points of the Indian capital market ecosystem. These and low transaction costs were great enablers of financial inclusion among investors in the country. The market infrastructure and other entities were behind the architected strong market ecosystem and technology was the key driver.

 

In terms of access, Buch said that SEBI was actively considering micro-size systematic investment plans of 250 rupees and was going to allow it soon for the mutual fund industry.  End

 

Edited by Akul Nishant Akhoury

 

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