Sebi Plans Balanced Measures to Strengthen India's Derivatives Market

The Securities and Exchange Board of India (Sebi) is actively considering new measures aimed at creating a more balanced derivatives market, according to chairman Tuhin Kanta Pandey. Speaking on Wednesday, Pandey emphasized the regulator’s intention to introduce reforms that will positively influence the derivatives segment without causing unnecessary disruption.

Investor losses in the futures and options segment have remained substantial despite multiple interventions by Sebi since the start of 2024. Pandey acknowledged the importance of the derivatives market, describing it as a crucial link between cash markets and futures trading. However, he pointed out that challenges have mostly centered around index options, especially those with short durations near expiry dates. He noted that the market currently favors options trading, creating an imbalance.

To address these concerns, the regulator is exploring ways to encourage longer-term derivatives products, including futures and stock options with extended expiry periods. Pandey mentioned Sebi’s willingness to revisit margin requirements and other related rules to support this shift. "If there is anything we can do concerning margins or longer-term instruments, we are prepared to consider it," he said during remarks on the sidelines of an event.

This approach reflects a broader effort by Sebi to enhance market stability and investor protection while fostering innovation and growth within the derivatives space. Derivatives play a vital role in risk management and price discovery, making their balanced development essential for the overall financial system.

In a related address at the SBI Banking and Economics Conclave, Pandey highlighted the evolving nature of India’s financing landscape. He explained that while banks have traditionally been central to economic growth through credit provision, borrower monitoring, and project financing, the country's financial needs have become more diverse and sophisticated over time.

"The question is not whether India’s growth should be funded by banks or markets; we require both to be strong and complementary," he stated. Over the past decade, securities markets have expanded their role within this ecosystem, providing alternative funding sources and broadening investor participation.

On taxation, Pandey indicated that policymakers must work toward simplifying the tax treatment of debt instruments. This is an important factor for investors and can contribute to deeper market development.

The chairman also detailed recent initiatives to strengthen India's corporate bond market, which currently holds an outstanding volume of approximately Rs 61 trillion. This amount represents around 55 percent of the total bank credit extended to industry and services sectors.

To improve market accessibility and efficiency, Sebi has lowered the mandatory issuance size for the Electronic Book Provider (EBP) platform from Rs 50 crore to Rs 20 crore. Additionally, the timeline for listing public debt issues has been shortened from T+6 working days to T+3, and the minimum face value for privately placed debt securities has been reduced to Rs 10,000 from Rs 1 lakh.

Other measures include the introduction of liquidity windows for non-convertible debentures and a pilot project for tokenizing corporate bonds under the Demat 2.0 framework. These steps aim to increase transparency, liquidity, and investor confidence in the bond market.

On the equity front, Sebi has expedited timelines for initial public offerings (IPOs) and rights issues, along with streamlining listing requirements for large issuers. Moreover, the regulator is reviewing the Accredited Investor Framework to better define eligibility criteria, which could broaden participation in certain market segments.

These comprehensive reforms reflect Sebi’s commitment to evolving India’s capital markets infrastructure to meet the demands of a growing and increasingly complex economy. By enhancing the derivatives and bond markets, the regulator seeks to provide investors with a wider range of options while maintaining market integrity and stability.