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Informist, Monday, Mar. 2, 2026

 

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--SEBI chief: Need speculators in F&O market for it to be proper market
--SEBI chief: Not against speculators in F&O, speculators make market whole
--CONTEXT: SEBI Chairman Pandey's comments in interview to Informist
--SEBI chief: Need to protect retail investors in F&O market
--SEBI chief: Speculators provide liquidity, essential in any market
--SEBI chief: Will see impact of measures on F&O, then decide course
--SEBI chief defends settlement mechanism, to look at disgorgement formula
--SEBI chief says recovery of money paramount, settlement mechanism helps
--SEBI chief: Don't have much to say on RBI norms, RBI consulted mkt players
--SEBI chief: Companies shouldn't be punished for fraud by few mgmt people
--SEBI chief: Working with govt to review F&O trading in few agri commodities
--SEBI chief: Growing instances of influencers defrauding people is an issue
--SEBI chief:Google agreed to whitelist authentic apps; talking to App Store
--SEBI chief: Reviewing listing, disclosure norms; need to fix ambiguity
 

 

By Anshul Choudhary and Kabir Sharma

 

MUMBAI - Speculators and traders are needed to develop the futures and options market and allowing trading only for hedging will not work because that will not help develop the market, Securities and Exchange Board of India Chairman Tuhin Kanta Pandey told Informist in an interview Thursday. The interview was embargoed for release Monday.

 

Pandey said even hedgers require liquidity and exit in the derivatives market which is provided by other market participants who will be speculators. "It is not market (without speculators and traders)...market means you can do business there," he said. "Speculators do play their role in generating liquidity." He said limiting the use of the derivatives market for only hedging will likely hit liquidity. Pandey was answering a question on whether the ultimate aim of the regulator was to limit the F&O market only to parties with an underlying exposure, which is the norm the Reserve Bank of India imposed on the currency futures market in April 2024. The RBI move had resulted in a very sharp drop in volumes when they had been imposed. However, volumes have recovered after the initial fall mainly due to the heightened volatility the rupee has seen in the last few months.

 

Pandey iterated that SEBI is not looking to cut volumes in the derivatives market to a particular level to determine whether SEBI's measures have been successful. SEBI had implemented sweeping changes to rules governing futures and options trading in 2025, including higher position limits, reducing the number of weekly contracts, and increasing lot sizes, among others.

 

"We (will) look at the impact (of changes done by SEBI) and then take further measures after the data...through a very consultative process," Pandey said. Earlier in February, Pandey had said that SEBI is not contemplating any new measures for the futures and options market for now. Currently, SEBI wants to focus on warning investors about the risks of trading in the derivatives market and protect them against unverified recommendations, he said.

 

CONCERNS OF BROKERS

SEBI has recently received representations from brokers and industry bodies on the new collateral and funding norms of the Reserve Bank of India, and has conveyed that some of these concerns may require a review by the central bank, the SEBI chairman said. Market participants, including the Association of National Exchanges Members of India, have approached the market regulator highlighting operational issues arising from RBI's recent framework governing lending to capital market entities.

 

According to the SEBI chairman, the RBI had earlier issued a consultation paper on financing to capital markets, which covered several aspects including acquisition financing and bank guarantees used in the market. Some brokers had then flagged concerns about provisions related to proprietary trading and collateral eligibility.

 

SEBI said it examined the representations it recieved from the industry body and broker community. "...initially, you know, we were given to believe that this was not indicated in the RBI paper, particularly issue relating to prop trading and this just cropped up subsequently in the final order. We looked at it, but that is not the case."

 

The SEBI review found that the issue had in fact been discussed earlier at the consultation stage. According to the new norms, banks can now only provide fully collateralised loans or bank guarantees to brokers. Collateral can include cash, treasury instruments, fixed-income securities, and highly liquid equities.

 

The chairman noted the RBI had already incorporated feedback from market participants during the consultation process, including suggestions regarding the types of securities that could be accepted as collateral. "The initial issue was about what kind of collateral would be eligible," he said. "There was a representation from industry that certain instruments should also be allowed as collateral, and that was accepted."

 

While some of the concerns raised by brokers have already been addressed, SEBI indicated that the RBI may need to examine some operational aspects flagged by the industry. Ultimately, the decision on these norms rests with the central bank because it relates to banks' lending risk and prudential oversight. "The central bank has to take a call on how banks fund such activities," the SEBI chairman said.

 

"In many respects, the Reserve Bank of India has provided something which was earlier not even permitted, subject to guardrails, on acquisition financing and other things...So, I think, when we looked at it, I don't think that we have much to say on this," Pandey said.

 

SETTLEMENT FRAMEWORK

While Pandey acknowledged speculation is important for price discovery in the equity market, he also pointed to the importance of surveillance and of punishing people involved in market manipulation. He was, however, of the view that companies should not be punished for a fraud especially when the money owed to investors can be recovered or if the management responsible for fraud has been removed.

 

Investors getting their money back should be the top priority and the settlement of a case helps in that regard, he said. "If there is a fund diversion and that money comes back, it is in the interest of the investor (for the company to continue)," he said. "If that money comes back to the company and the company goes on and the share value recovers, sometimes it is in his (investor) interest to do it (settle case)."

 

"For example, how would we have sorted out the NSE issue? It is an institution," he said. "A few people suppose made mistake...but should we deny...(and say) that an institution is not fit and proper where 70-90% of your trading is taking place every day." Pandey said he didn't see a case in denying the current investors of NSE a chance to get an exit over the mistakes of the previous management.

 

SEBI recently approved NSE's initial public offering after the exchange offered to settle the co-location case. In November, NSE had made a provision of nearly INR 13 billion towards the settlement amount to be paid to SEBI.

 

Pandey spoke at length about the importance of putting large companies to use rather than hitting them with endless prosecution. "We should talk about rationale and sort things out rather than constantly keeping a pot boiling and achieving nothing," he said.

 

Pandey supported settlement of cases and said the conditions should be "stringent but fair". SEBI has enough tools for punishing the culprits through disgorgement, penalty, among others, he said. Pandey plans to simplify the formula to calculate the disgorged amount as there is some ambiguity about this.

 

While he said settlement is sometimes the best option, it shouldn't be applied for all the cases that SEBI investigates. "You should see the outcomes and outcomes also include jailing people," he said. "I am not saying that some people should go to jail, but that has to (be) only through prosecution and some people should really be facing (section) 11B."

 

The section 11B of the SEBI Act allows the regulator to ban any person or entity from the securities market or direct them to disgorge the amount equivalent to the wrongful gain. In a broad sense, the section allows SEBI to issue directions in the interest of investors and the securities market.

 

COMMODITY FUTURES

The SEBI chairman also said the regulator is working with the government to review the long-standing ban on trading in some agricultural commodity derivatives. Studies commissioned by SEBI have found that prohibiting futures trading in some commodities has not necessarily helped stabilise prices of these commodities, Pandey said. According to the regulator, evidence does not clearly support the view that derivatives trading itself leads to excessive volatility in underlying commodity prices.

 

The chairman said the absence of a domestic futures market can also shift hedging activity to overseas exchanges, particularly for commodities where India is a major producer or consumer. "If you do not have the market here, people will hedge elsewhere," he said, citing the example of traders using overseas markets for commodities such as gold when domestic derivatives options are limited.

 

SEBI has also set up working groups comprising farmers, farmer-producer organisations, traders and other stakeholders to identify structural barriers in the commodity derivatives market and existing products. Some of the obstacles identified include outdated regulatory provisions, operational bottlenecks, and tax-related issues that may require coordination with the government and the GST Council, Pandey said. 

 

While SEBI said it supports a deeper commodity derivatives markets in principle, the final decision on lifting ban on futures trading in specific commodities will depend on the government. "I will not hazard any guess," the chairman said when asked if the trading ban could soon be lifted on any particular commodity, and added that any policy change would involve multiple stakeholders.

 

FINFLUENCERS, REGULATIONS

Pandey warned against growing instances of social media influencers defrauding investors. SEBI is actively reviewing social media posts and videos using artificial intelligence to raise alerts against people who are not registered advisers giving stock recommendations, he said.

 

Pandey said Google has already agreed to SEBI's proposal to whitelist apps and a tick mark will be visible against approved and authentic apps on the Play Store. SEBI is trying to get this implemented on the Apple App Store as well.

 

Pandey iterated he is yet to receive the report from the committee looking at possibility of self-funding of clearing corporations. He clarified he was not against clearing corporations remaining a subsidiary of exchanges but wants a "more transparent mechanism" of sharing resources and charged fees.

 

SEBI had issued a consultation paper in November 2024 which recommended to reduce shareholding of the parent exchange in clearing corporations and allow the latter to look at the fee structure with an aim to become self-reliant. The working group that is currently looking at the possibility of giving more independence to clearing corporations hasn't submitted its report yet, Pandey said. Some media reports last year had said the working group is likely to suggest clearing corporations charge higher fees from exchanges to help fund themselves.

 

Simplifying regulations has been on the agenda of SEBI since Pandey took charge as the chairman in March last year. Since his posting, the regulator has updated master circulars for mutual funds and stock brokers and it is now reviewing the listing obligations and disclosure requirements, which the chairman described as the "king of regulations". He acknowledged that there is scope for ambiguity and that different interpretations of the listing and disclosure norms are possible.

 

"Whenever you keep too many grey areas then it creates that kind of discomfort. Because people should be clear about what my obligations are," he said. "I am actually a big believer in clarity. I think lack of clarity creates over-regulation."  End

 

Edited by Vandana Hingorani

 

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