The capital market regulator's reservations over derivatives products have made it almost impossible for stock exchanges to launch new products in the futures and options (F&O) space. Sources say applications for new F&O products are pending with the regulator as it wants to analyse the impact of every product on the overall market before giving the go-ahead.
According to persons familiar with the development, stock exchanges have submitted proposals for quite a few derivatives products and have been awaiting the regulatory nod for long. The Securities and Exchange Board of India (Sebi), they say, is wary of retail investors entering the F&O segment and so is taking a very cautious stance.
“Exchanges want to launch a few strategy-based products along with derivatives on some of the existing indices but the regulator is still not convinced of the products,” said a person privy to the product proposals. “There is a view within Sebi that more F&O products are not in the best interest of the market and investors. Also, concerns raised by Sebi regarding product design have not been properly addressed by the exchanges,” he added, wishing not to be named.
It is believed the National Stock Exchange (NSE) has submitted a proposal to launch F&O contracts on its recently-launched index — LIX 15 — but the regulator is yet to respond. Interestingly, it has been over three years since NSE sought Sebi's permission to launch derivatives on its volatility index – VIX – but is yet to receive the nod.
The exchange is also believed to have submitted proposals to launch some strategy-based products, which include the use of multiple contracts with the same underlying. For instance, more than one option contract could be combined to be traded together at a netted price with the quantum of possible loss also known up-front.
Sources, however, say if the earlier actions of Sebi are anything to go by, it is highly unlikely the proposals will get the regulatory go-ahead in near future. Last year in November, Sebi had directed stock exchanges to discontinue mini derivative contracts on Sensex and Nifty that were essentially launched to attract retail investors to the F&O segment.
“To ensure small/retail investors are not attracted towards derivatives segment, it has now been decided to discontinue mini derivative contracts on index (Sensex and Nifty),” stated the Sebi circular.