The Securities and Exchange Board of India (Sebi) is not planning any further regulatory reforms for the equity futures and options (F&O) segment, Chairman Tuhin Kanta Pandey said. “At the moment, we are not contemplating any measures. And whatever framework that we have put in place, that will continue,” Pandey added at the sidelines of the corporate bonds outreach program organised by the regulator and stock exchanges.
He added that Sebi is looking at the derivatives market in a very methodical manner based on data. When asked if the regulator has plans to tighten the weekly expiry of derivatives, Pandey said there aren’t any and also reiterated that the current framework will continue.
Pandey’s statement came as a relief for investors who were fearing more likely stringent measures in the derivatives space. Shares of some capital markets companies such as BSE, Nuvama Wealth Management, and Angel One recovered intra-day and closed around 1-4% higher on the BSE.
These stocks had fallen sharply on Sunday after the government proposed to hike the securities transactions tax (STT) on equity F&O to curb the significant rise in speculative trading. The STT on futures was raised to 0.05% from 0.01%, that on options premium as well as exercise of options each to 0.15% from 0.1% and 0.125%, respectively.
STT hike led to mixed reactions
The STT hike had led to mixed reactions from market participants. Some criticized the move as a further sentiment dampened for a market which not only underperformed on the global front, but also saw lower returns and sharp foreign outflows. On the other hand, many cheered the announcement, saying that it will help bring down speculative trading among retail traders who have been making huge losses in the segment.
One of the key positives for the equity market is the announcement of the US-India trade deal on Monday, which is expected to bring more foreign inflows in the medium-to-long term. “With the deals that have been done on the trade side, a lot of uncertainties have been removed,” the Sebi chairperson said. Any capital formation is always accelerated with the removal of uncertainties and hence, investments decisions will be spurred, Pandey said. Many regulatory measures introduced are important for FPIs, including the reduction in registration timings, circulars about the closing auction, and the latest consultation paper on netting mechanism, he said.
More issuers need to lean on liquidity window facility
“Liquidity window facilities introduced to allow investors to sell bonds back to issuers in maturity. We need more takers, more issuers to lean on this particular facility,” Pandey said.
Sebi introduced the liquidity window facility in 2024, which allows investors to sell their bonds back to the issuer before the maturity. This creates liquidity in the debt market and helps to increase retail participation. The window will be open for three business days and can run on either a monthly or quarterly schedule.
Pandey highlighted the need to develop the corporate bond market. “A well-developed corporate bond market gives corporates an alternative to bank borrowing, especially for long-term funding.
It diversifies risks beyond the banking system and can help bring down the cost of capital for corporates. For retail investors, corporate bonds offer portfolio diversification beyond equities and bank deposits,” Pandey said.
Data indicates that India’s corporate bonds outstanding represent just around 16% of GDP, versus 79% in South Korea, 54% in Malaysia, and 38% in China.
He iterated that retail participation in the debt market is extremely low and pointed out that Sebi’s investor survey shows awareness of corporate bonds as an investment product is only about 10%, well below deposits, insurance and small savings.
Regarding the measures announced in the Budget to deepen the debt market, he said a market-making framework will support continuous two-way boards, reduce bid-ask spreads and improve price discovery, thereby making corporate bonds a more reliable asset class for investors. “Derivatives of corporate bond indices and total return swap will help investors in efficient risk management,” he added.