(Bloomberg) -- India’s securities market regulator surprised investors by refraining from announcing measures to limit a surge in derivatives trading, even as it tinkered with rules for the nation’s booming mutual fund industry.
The Securities and Exchange Board of India was widely expected to discuss and approve measures proposed in July — including limiting the number of options with weekly expirations and raising the minimum contract size — at a board meeting Monday, after growing retail participation took the speculative bets to the highest in the world. However a 23-page statement had no mention of the deliberations.
“Market was expecting some kind of clampdown after recent warnings,” said Abhay Agarwal, founder and fund manager at Piper Serica Advisors Pvt. “It is now bound to create more anxieties as to what’s the regulator’s intent: will it be just rhetorical warnings or will there be some action too.”
It’s unclear if the matter was discussed at the board meeting, and if so, whether any decisions will be announced in the coming days. A spokesman for Sebi didn’t reply to queries outside of business hours in Mumbai.
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Steps Sebi approved at the meeting:
- Introduction of a new hedge-fund-like investment product for mutual fund investors that have a higher appetite for risk
- Introduction of less stringent regulations for passively managed plans for mutual funds. It lowers requirements for net worth and profitability track record
- Widened the definition of a “connected person” in the case of possession of unpublished price-sensitive information. The new rules define a connected person as one sharing a household, a firm, and family members including spouse, in-laws, parents and siblings
- An earlier proposal to move from optional T+0 settlement to optional instantaneous settlement is not under consideration for now
- The Sebi board mandated application of additional disclosure norms for foreign portfolio investors who use overseas derivatives instruments for trading in Indian equities. It also limited the use of overseas derivatives instruments to only those that have cash equity, debt securities and other non-derivative investments as an underlying
SEBI Chairperson Madhabi Puri Buch had described the surge in derivatives trading as a “macro issue” that diverts capital from productive use in the economy. Her warnings — and tax hikes coming into effect next month — have helped bring down the volume of contracts traded from a record $6 trillion in February.
“A lot of high-networth-individual traders who were circumspect on taking positions in derivatives because of expectations of these new curbs, could come back to the market,” said Tejas Shah, head of derivatives trading at Equirus Securities Pvt. “No negative news is also a positive.”
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