The Securities and Exchange Board of India (SEBI) has put forth a proposal to revamp regulations concerning exchange-traded derivatives. This initiative aims to ease the compliance burden on stock exchanges and streamline market processes. SEBI’s plan involves consolidating, trimming, and restructuring sections of its master circulars that encompass equity, currency, interest rate, and commodity derivatives.
In a move to enhance the business environment for market infrastructure institutions, SEBI suggested eliminating the “close-to-the-money” option series in commodity options. This step is intended to simplify trading by reducing complexity and uncertainty for traders. The regulator highlighted that major global commodity exchanges do not adhere to the CTM framework, relying solely on in-the-money and out-of-the-money options.
SEBI emphasized that traders may encounter challenges in assessing the intrinsic costs associated with CTM options. The regulator has opened the proposal for public feedback until June 4. Additionally, SEBI proposed decreasing the mandatory frequency of Product Advisory Committee meetings for non-agricultural commodities to once a year, citing limited agenda items and logistical convening difficulties as reasons for the adjustment.
Exchanges will have the flexibility to convene meetings as needed, according to the market regulator’s proposal. Notably, there is considerable overlap in eligibility criteria for index futures, currency futures, and currency options, including prerequisites like SEBI’s prior approval, distinct membership separation for brokers across segments, and clearing through recognized Clearing Corporation.
Among other suggestions, SEBI contemplated leveraging exchange websites for disclosing derivatives transactions instead of traditional newspaper methods. The proposals also entail empowering exchanges with more discretion in tightening position limits and eliminating outdated regulations on broker certification and capital requirements. SEBI clarified that these measures are aimed at streamlining processes and eliminating redundancies, with a focus on enhancing operational efficiency rather than compromising investor protection.
