MUMBAI: Market regulator SEBI is “watchful” of instances of market players trying to manipulate one segment to profit in another, specifically when a few stocks have high weighting in the index, a senior official said on Saturday.
“When you have indices which have huge weighting on a few handful of stocks, even if there is no manipulation happening, the fear that some people might be manipulating the cash market to derive or drive the derivatives markets and increase volatility is not healthy,” SEBI whole-time member Ananth Narayan said here on Saturday addressing the concerns of possible manipulation in the cash market, which could lead to volatility or activity in the derivatives market to profit some people. While practices of taking bets in both cash and derivatives is not unusual as it is used for hedging or higher profit, the regulator is watchful of any ‘pump and dump’ under the garb of such trades, he told at a seminar by the SEBI-run National Institute of Securities Markets.
“A burst of activity by a large player in one market to profit in the other market - a lot of buying followed by a lot of selling in order to profit in the derivatives market. Likewise, marking the close where just at the time of expiry, if there is a lot of activity in cash market to try and get a particular close, these are standard manipulative practices that every regulator in the world watches out for.”
“One of the questions that we have is when you have indices trading in futures and options, purely for trading in F&O, not for benchmarks, for mutual funds, not for anything else, should there be restrictions on how much of weighting the top stock, the top three stocks, etc. should have. Now, this is a matter of discussion,” he added.