Sebi invites views on physical settlement for stock derivatives

In a consultation paper, Sebi also asked market participants to submit their views on whether physical settlement should be done in a phased manner starting with stock options followed by stock futures.

The comments have been sought till September 25 and follows an earlier detailed consultation paper on an overhaul of the rules governing equity derivatives in India through which the regulator is looking to detoxify the 'high-turnover, high-risk derivatives trading'.

There have been concerns over suitability of these 'complex and risky' products for individual investors.

Sebi had initiated a public consultation in July for framing the new rules, while noting that the trading turnover in these products has seen a sharp surge of over ten-fold over the past decade and the ratio of trades in equity derivatives to that of equity cash market has risen to over 15-times.

Replying to the consultation call, the Association of National Exchanges Members of India (ANMI), a pan-India body of trading members across leading exchanges including NSE and BSE, has submitted that "the NSE publishes options data by stating 'notional' turnover (as opposed to premium turnover), thus grossly overstating the total quantum of business in the futures and options segment".

It has said that the turnover in equity derivatives is 15.59 times that of cash market, whereas this ratio after taking only premium is only 2.53 times, which "clearly falls within the global exchange norms".

Derivative in financial markets typically refers to a forward, future, option or any other hybrid contract of pre- determined fixed duration, linked for the purpose of contract fulfilment to the value of a specified real or financial asset or to an index of securities.