MUMBAI: Indicating more curbs needs to be brought into the derivatives segment, as the volume continue to remain high even after the many measures introduced since last November, Sebi chairman Tuhin Kanta Pandey has said there is a need to increase the tenure and maturity of equity derivatives.
Addressing the industry lobby Ficci-organised annual capital markets summit here, Sebi chairman was quick to add that currently proposal is only a “thought process” and that the industry would be consulted before taking any decision. “A consultation paper in this regard will be initiated,” Pandey added.
"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," Pandey told reporters on later.
The move can potentially have a significant impact for the equity markets 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," he said, adding, "qualitatively we have to see the duration of the contracts, but we have to calibrate it. This is only in-principle we're stating, on what we should be doing," the chairman added.
The equity derivatives arena has been in the focus in the recent past, with the regulator taking various steps to curb the quantum of trading. For instance, Sebi has brought down weekly contracts to one per exchange while also fixing the contract expiry days.
The statement led to sharp decline in key listed industry players like the bourse BSE, and listed brokerages Motilal Oswal and Angel One on Thursday.
Some market participants fear any move to increase the tenure of derivative contracts can impact volumes for the BSE and broking companies. Shares of the BSE and Angel One were lower by 5% 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 Pandey.
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 the 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 (F&O) segment since November last following two studies that Sebi had conducted shown that retail investors were heavily losing.
While its September 2024 study had found that as much as 93% of retail investors lost heavily, with each losing close to Rs 1 lakh in FY24, another study released last month found that 91% of retail investors lost Rs 1.25 lakh each in FY25.