MUMBAI: Days after the government more than doubled the tax on futures and options trading, leading to a bloodbath in the market, the Securities and Exchange Board of India (Sebi) said it is not planning any further regulatory reforms for the segment.
“As a regulator, we are looking at derivative markets in a very methodical manner, based on data and other inputs. At this moment, we are not contemplating any measures, and whatever framework we have put in place will continue,” Sebi chairman Tuhin Kanta Pandey said on the sidelines of the corporate bonds outreach program organised by the regulator and stock exchanges here Wednesday.
He further said Sebi is looking at the derivatives market in a very methodical manner based on data. When asked if the regulator has plans to tighten the weekly expiry of derivatives, Pandey said there aren’t any and also reiterated that the current framework will continue.
Pandey’s statement came as a relief for investors who were fearing more stringent measures in the derivatives space. Shares of some capital markets companies such as BSE, Nuvama Wealth Management, and Angel One recovered intra-day and closed around 1-4% higher on the BSE.
After the Budget proposed to raise the securities transaction tax from the present 0.02% to 0.05%, there was a bloodbath in the market with the above mentioned companies tanking badly. The main benchmarks tanked 2% each on the day.
While the STT on futures was raised to 0.05% from 0.01%, that on options premium as well as exercise of options were each raised to 0.15% from 0.1% and 0.125%, respectively.
The STT hike had led to mixed reactions from market participants. Some criticized the move as another sentiment dampener for a market which not only underperformed on the global front, but also saw lower returns and sharp foreign outflows. On the other hand, many cheered the announcement, saying it will help bring down speculative trading among retail traders who have been making huge losses in the segment.
On the trade deal with the US, though details have not been shared by the government yet, Pandey said, “With the deals that have been done on the trade side, a lot of uncertainties have been removed. Any capital formation is always accelerated with the removal of uncertainties and hence, investments decisions will be spurred.”
“When an overhang of a regulatory action is removed, trade frictions are removed. Any capital formation is always accelerated with the removal of uncertainties. Investment decisions will be spurred and there will be greater predictability on the capital to go for that. It will also have salutary movements on the exchange rate,” Pandey said.
Many regulatory measures introduced are important for FPIs, including the reduction in registration timings, circulars about the closing auction, and the latest consultation paper on netting mechanism, he said.
“The regulator’s responsibility is to provide a consistent, predictable, easy, and frictionless framework for FPIs to facilitate capital movement,” he said, adding the market regulator was continuously refining its processes.
On the liquidity window facility, he said, “Liquidity window facilities have been introduced to allow investors to sell bonds back to issuers on maturity. We need more takers, more issuers to lean on this particular facility.”
Sebi introduced the liquidity window facility in 2024, which allows investors to sell their bonds back to the issuer before maturity. This creates liquidity in the debt market and helps to increase retail participation. The window will be open for three business days and can run on either a monthly or quarterly schedule.
Highlighting the need to develop the corporate bond market, he said, “A well-developed corporate bond market gives corporates an alternative to bank borrowing, especially for long-term funding. It diversifies risks beyond the banking system and can help bring down the cost of capital for corporates. For retail investors, corporate bonds offer portfolio diversification beyond equities and bank deposits.”
Corporate bonds outstanding represent just around 16% of GDP, versus 79% in South Korea, 54% in Malaysia, and 38% in China.
Reiterating that retail participation in the debt market is extremely low, he said Sebi’s investor survey shows awareness of corporate bonds as an investment product is only about 10%, well below deposits, insurance and small savings.
Regarding the measures announced in the Budget to deepen the debt market, he said a market-making framework will support continuous two-way boards, reduce bid-ask spreads and improve price discovery, thereby making corporate bonds a more reliable asset class for investors. “Derivatives of corporate bond indices and total return swap will help investors in efficient risk management,” he added.