Summary of this article
SEBI plans long term equity futures and options contracts.
Regulator to launch new guidelines for artificial intelligence use.
SEBI intends to introduce derivatives on bond market indices.
Securities Exchange Board of India Chairman Tuhin Kanta Pandey spoke about the capital market regulator’s vision for the capital market. In his address, delivered at the ET NOW Market Summit in Mumbai on June 12, Pandey highlighted that even as global markets face challenges from geopolitical tensions to technological disruptions, the domestic market has demonstrated resilience. He also underscored the regulator's commitment to deepening the capital market.
Enhancing Market Depth through Derivatives
Pandey mentioned that in order to deepen the market, there is a need to develop longer-term futures and options contracts in the equity derivatives market. Longer-term futures and options contracts refer to financial derivatives which have expiration dates extending further into the future than the present standard, under which expiration dates tend to have monthly or quarterly cycles.
These longer-expiry instruments can allow investors to speculate on market direction over an extended investing horizon, rather than being limited to shorter horizons provided by near-term contracts. The addition of longer-term futures and options can potentially provide investors with a more liquid trading environment. Instruments which allow for better hedging and long-term risk management can aid investors in navigating volatile periods in the stock market.
The Sebi chief also underlined the need for a robust derivatives environment and added that Sebi is set to expand its scope significantly.
"Development of longer-term futures and options contracts in the equity derivatives market will be an important part of deepening the capital markets," Pandey said.
He mentioned that the regulator is looking to broaden the market for commodity derivatives. Some of the key proposals under review include extending early pay-in benefits to options contracts and a gradual shift from cash to physical settlement for select agricultural commodities.
He added that in order to add further depth to the debt market, Sebi also plans to introduce derivatives on bond indices in collaboration with the Reserve Bank of India.
Broader Regulatory Reforms
Apart from Sebi’s initiatives to deepen the capital market vis-a-vis the derivatives market, Pandey also mentioned several measures aimed at reducing friction. The regulator is currently revamping the Listing Obligations and Disclosure Requirements (LODR) framework to align it with emerging governance requirements.
Additionally, the regulator also intends to make the delisting framework simpler for companies and enhance capacity building programs for Independent Directors. The regulator is also looking into the responsible use of artificial intelligence in capital markets, and plans to issue guidelines to address risks related to data protection and algorithmic bias.
The Sebi chief concluded that the regulator continues to prioritise investor education through initiatives such as ‘Project Jagrook’ and added that India's growth trajectory depends on building upon the country’s foundations with discipline, integrity, and confidence.
