Skip to main content

Sebi expresses concern over high derivatives to cash turnover

The Securities and Exchange Board of India (Sebi) has expressed concern over high equity derivatives turnover visàvis cash turnover.For every one rupee of cash turnover, Rs 15.6(notional value) of derivatives is traded.

The derivatives to cash turnover in India is the world´s second highest, after South Korea, where it is 24 times.Australia, Japan and Spain have a derivatives to cash ratio of less than five.

The markets regulator has also raised concern overalot of individual investors dealing in the derivatives space without understanding the risks.Sebi on Wednesday
issued a discussion paper on ´Growth and development of the equity derivatives market in India´.

“Orderly growth, development and alignment of both cash and derivatives markets is important,” it has said. “The discussion paper has been prepared to undertake an assessment of the derivatives market in India, to evaluate whether there isaneed to further strengthen the regulatory framework.” Sebi has given market participants till August 10 to respond.

It will collate the feedback and possibly announce steps to develop the derivatives market.Such measures could impact the National Stock Exchange, where a little more than 95 per cent of equity derivative trading in India takes place.

The regulator has, for one, invited public feedback on the high proportion of derivatives trading.It has asked whether there is a “need to align the cash and derivatives market”.

It has asked what measures could be taken to “create balanced participation in equity derivatives”.Given the huge presence of individual investors in the derivatives space, it has said, it wishes to know if there is a need to have a product suitability framework.

This would restrict specified investors from dealing in certain derivatives contracts.Sebi is also mulling if the minimum contract size and open position limits for equity derivatives need to be changed.

And, if there is “any regulatory arbitrage that needs to be addressed”.“A large number of individual investors are active in the derivative segment.

Going by their trading pattern in the cash segment, it is observed that these investors may or may not have adequate financial capability to withstand the risks posed by complex derivative instruments,” Sebi says.

It had recently conductedasurvey which showedathird of investors believe equity markets are less risky than the debt market.And,a large portion of survey respondents said the derivatives markets were safer than debt markets According to Sebi, around 570,000 individual investors currently deal in the derivatives segment and account for nearly 30 per cent of the total turnover here.

However, nearly 15 per cent of the individuals who trade in derivatives have never traded in the cash segment.While Sebi acknowledges the role of “speculators” as
“counter party hedgers”, it says derivatives ideally should be used for hedging purposes.

It says “a soundly based derivatives market requires the presence of both hedgers and speculators”.

Business Standard, New Delhi, 13th July 2017


Popular posts from this blog

At 18%, GST Rate to be Less Taxing for Most Goods

About 70% of all goods and some consumer durables likely to cost less

A number of goods such as cosmetics, shaving creams, shampoo, toothpaste, soap, plastics, paints and some consumer durables could become cheaper under the proposed goods and services tax (GST) regime as most items are likely to be subject to the rate of 18% rather than the higher one of 28%.

India is likely to rely on the effective tax rate currently applicable on a commodity to get a fix on the GST slab, said a government official, allowing most goods to make it to the lower bracket.

For instance, if an item comes within the 12% excise slab but the effective tax is 8% due to abatement, then the latter will be considered for GST fitment.

Going by this formulation, about 70% of all goods could fall in the 18% bracket.

The GST Council has finalised a four-tier tax structure of 5%, 12%, 18% and 28% but has left room for the highest slab to be pegged at 40%. A committee of officials will work out the fitment and the council…

Coffee-Toffee, the GST Debate Continues

Hundreds of crores of rupees in the form of taxes ride on the exact categorisation of products Is Parachute hair oil or edible oil? Is KitKat a chocolate or a biscuit? Is a Vicks tablet medicament or confectionery? For the taxpayer and the tax collector, this is much more than an exercise in semantics -hundreds of crores of rupees ride on the exact categorisation.
As the government moves closer to rolling out the goods and services tax (GST) on July 1, many such distinctions are being debated so that no ambiguity remains. Not just that, the government is revisiting old tax cases that were lost over product categorisation, according to people with knowledge of the matter, presumably with a view to making sure that revenue collections can be maximised. “In the past, several tax officers had challenged some of the product categorisations, including those in the retail segment, but lost out in court or at appellate level,“ said one of the persons. “Now we have a chance to go ahead with speci…

Deposit gush:-CA Institute Bats for Special Audit