Published On: Fri, Jul 16th, 2010

SEBI May Approve Physical Delivery Settlement in Derivatives in a Month

Physical Delivery To Reduce Volatility And Manipulation In F&O Segment

The Securities and Exchange Board of India (SEBI) may take a final decision on the proposal to introduce physical delivery in equity derivatives in a month. In March this year, the capital market regulator had given an in-principle nod for the proposal, after the Derivative Market Review Committee suggested ways in which physical settlement could be introduced. Currently, trades in equity derivatives are settled in cash, based on the closing prices on the day of contracts expiry.

The issue of enabling physical delivery based settlement is being discussed between SEBI and stock exchanges. We can expect a decision within a month, CB Bhave, chairman, SEBI, said on the sidelines of the launch ceremony of certification examination for financial advisors.

The programme will be conducted by the National Institute of Securities Market (NISM) in association with the Financial Planning Corporation (India).

Many market participants have been demanding the introduction of physical settlement, as they say that it would reduce volatility and manipulation in the derivatives segment.

Often, market operators in collusion with the promoters of mid-cap companies ramp up the futures prices, after cornering a sizeable chunk of the floating stock. In a case involving a mid-sized realty firm, the stock price trebled within a month after the promoters and a cartel of operators forced short-sellers to cover their positions at a premium. The traders at the receiving-end had gone short on the futures of the realty firm.

Speaking on other issues, Mr Bhave said that options contracts would be soon launched in the currency derivatives segment. Globally, options constitute a substantial part of the turnover in currency derivatives. The technical group between RBI and SEBI is working on this,and we expect a decision soon, Mr Bhave said.
The size of the currency derivatives market has been growing at a rapid pace, after the exchange-traded currency derivatives market was flagged off in August 2008 with the introduction of rupee-dollar futures.

The SEBI chairman also said that the regulator is considering whether distributors of financial products need to be regulated. The issue is under consideration and we are looking into various issues. Nothing has been decided as yet, he said.

On the issue of slow progress of the mutual fund trading platform on stock exchanges, Mr Bhave said that the process was new and hence, taking time. We want to give them a sufficient time, before arriving at any conclusion as to why there are not sufficient volumes, he said.

Source: Times of India

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