Sebi plans tweaks to address derivative trading risks; may include higher margins for options contracts: Report

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Capital markets regulator Securities & Exchange Board of India (SEBI) is considering a series of tweaks to its derivative trading rules as it seeks to address risks arising from explosive growth in options trading, Reuters reported quoting sources with direct knowledge of the matter.

The new rules could include higher margins for options contracts and more detailed disclosures, the report said.

These new rules are being considered after a series of meetings with stock exchanges, brokers and fund houses over the past four months, it added.

One of the sources told Reuters that there was a need for appropriate risk disclosure and steps to prevent excessive speculation or possible manipulation.

The first step the regulator is considering is a linking of options trading with underlying cash volumes in a stock, to contain the build-up of open positions in less liquid stocks, the sources said.

In cases where there is excessive build-up of options positions relative to cash volumes, the margin requirement for trading options would increase, they told Reuters.

Options volumes in India are roughly four-fold underlying cash trading volumes, whereas the global average ranges from 5-15 times.

“This ratio has raised concerns,” the second source told the news agency.

The derivatives to cash ratio is about 9 times in the United States.

The regulator will also suggest increasing disclosures on index and stock options contracts, rather than just options activity and open interest as is now done, the report added.

SEBI is planning to ask exchanges to levy flat fees on brokers regardless of their turnover, changing a practice of charging lower transaction fees for brokers with high turnover, it said.

Earlier this month, SEBI suggested tighter rules for individual stock derivatives which, if implemented, would weed out derivatives linked to illiquid stocks.

The proposed changes are in the discussion stage and will be put up for public consultation over the next few months before they are introduced, the sources told the news agency.

(With inputs from Reuters)

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Published: 18 Jun 2024, 12:25 PM IST

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