Below is a report fron the Eco times. How do you think it will affect the markets, especially the mini contracts on stocks. Do you thinf The regulators are finally coming to their senses by having smaller lots?
Your opinion guys .......
SEBI wants it...
NOW,EXOTIC DERIVATIVES IN THE WORKS
Sebi Panel Proposes Exchange-Traded Derivatives, Over-The-Counter Products
Our Bureau MUMBAI
WARREN Buffett, some years ago, likened them to financial weapons of mass destruction. Developed markets had their fling with them, with mixed results. And now it seems to be India’s turn to experiment with complex financial instruments, as it aims to move up the pecking order of the global financial system.
The Derivatives Market Review Committee, appointed by the Securities and Exchange Board of India (Sebi), has proposed introduction of a series of sophisticated derivatives products — notably, overthe-counter (OTC) products, exchange-traded derivatives products and exchange-traded third-party products.
OTC products are derivatives contracts that are traded directly between two parties, without going through a stock exchange or any other intermediary. Other proposed products include option contracts with longer tenures, a volatility index, exchange-traded currency derivative products and exchange-traded products, involving various strategies. Barring OTC, all the other proposed derivatives products had been approved in principle by the Sebi board headed by former chairman M Damodaran.
The committee has proposed the introduction of physical settlement in equity derivatives, beginning with single-stock options, and an overhaul of the current margining system.
A separate segment for structured products — those tailored to suit the buyer’s requirements — purely for institutions, banks and insurance companies, greater freedom for domestic mutual funds to lend shares, permission for hedge funds to participate in the options market, and introduction of market makers are also on the cards. An example of a structured product would be a contract that offers the holder returns based on the movement of the Nifty, and a pre-decided combination of stocks.
Interestingly, MS Sahoo, whole-time member, Sebi has advocated caution while introducing these products. “Regulators have to be extra careful when they allow complex financial products... any signs of toxicity need to be nipped in the bud. Regulators must know the implications of structured products before they allow them,” he said at a seminar organised by NSE, Crisil and S&P on Friday.
At present, an OTC market exists in interest rate, currency and commodities derivatives. However, there is no such market in equities, and any transaction of this nature is not legally enforceable.
The committee has proposed that to begin with, OTC products are to be based on indices, index futures and index options as underlying, and later, these contracts can also be based on stocks, singlestock futures and single-stock options.
Sebi seeks public views
ALSO, there will have to be “full and transparent” reporting of the value, quantity and term-sheet of OTC products to the exchanges and clearing corporations. Such transactions will have to be handled by clearing members with a net worth of Rs 50 crore, and each counterparty to the contract should have a net worth of Rs 500 crore or more. Often, large institutions owning sizeable equity stakes in companies, hold on to their investments for the long term.
This lowers the available floating stock in these companies. To reduce the probability of manipulation in such stocks, the committee has proposed that these large institutions be permitted to issue structured products based on the shares held by it, as the underlying. Such products can be traded on stock exchanges.
In addition, the committee has proposed introducing an opening price in the derivatives market, increasing time for computing closing prices to 45-60 minutes from 30 minutes and a post-clearing session giving investors additional time to square off their positions. The regulator has invited public comments on the paper by April 6.
Your opinion guys .......
SEBI wants it...
NOW,EXOTIC DERIVATIVES IN THE WORKS
Sebi Panel Proposes Exchange-Traded Derivatives, Over-The-Counter Products
Our Bureau MUMBAI
WARREN Buffett, some years ago, likened them to financial weapons of mass destruction. Developed markets had their fling with them, with mixed results. And now it seems to be India’s turn to experiment with complex financial instruments, as it aims to move up the pecking order of the global financial system.
The Derivatives Market Review Committee, appointed by the Securities and Exchange Board of India (Sebi), has proposed introduction of a series of sophisticated derivatives products — notably, overthe-counter (OTC) products, exchange-traded derivatives products and exchange-traded third-party products.
OTC products are derivatives contracts that are traded directly between two parties, without going through a stock exchange or any other intermediary. Other proposed products include option contracts with longer tenures, a volatility index, exchange-traded currency derivative products and exchange-traded products, involving various strategies. Barring OTC, all the other proposed derivatives products had been approved in principle by the Sebi board headed by former chairman M Damodaran.
The committee has proposed the introduction of physical settlement in equity derivatives, beginning with single-stock options, and an overhaul of the current margining system.
A separate segment for structured products — those tailored to suit the buyer’s requirements — purely for institutions, banks and insurance companies, greater freedom for domestic mutual funds to lend shares, permission for hedge funds to participate in the options market, and introduction of market makers are also on the cards. An example of a structured product would be a contract that offers the holder returns based on the movement of the Nifty, and a pre-decided combination of stocks.
Interestingly, MS Sahoo, whole-time member, Sebi has advocated caution while introducing these products. “Regulators have to be extra careful when they allow complex financial products... any signs of toxicity need to be nipped in the bud. Regulators must know the implications of structured products before they allow them,” he said at a seminar organised by NSE, Crisil and S&P on Friday.
At present, an OTC market exists in interest rate, currency and commodities derivatives. However, there is no such market in equities, and any transaction of this nature is not legally enforceable.
The committee has proposed that to begin with, OTC products are to be based on indices, index futures and index options as underlying, and later, these contracts can also be based on stocks, singlestock futures and single-stock options.
Sebi seeks public views
ALSO, there will have to be “full and transparent” reporting of the value, quantity and term-sheet of OTC products to the exchanges and clearing corporations. Such transactions will have to be handled by clearing members with a net worth of Rs 50 crore, and each counterparty to the contract should have a net worth of Rs 500 crore or more. Often, large institutions owning sizeable equity stakes in companies, hold on to their investments for the long term.
This lowers the available floating stock in these companies. To reduce the probability of manipulation in such stocks, the committee has proposed that these large institutions be permitted to issue structured products based on the shares held by it, as the underlying. Such products can be traded on stock exchanges.
In addition, the committee has proposed introducing an opening price in the derivatives market, increasing time for computing closing prices to 45-60 minutes from 30 minutes and a post-clearing session giving investors additional time to square off their positions. The regulator has invited public comments on the paper by April 6.
