SEBI has again come up with new Derivative market rules to tighten the derivatives market. These new norms have been proposed to reduce the risks in this market. With the continuous surge in the number of retail traders in the derivatives market, the steps taken by SEBI have always been helpful for the traders and reduced the rate of losing money in the market which also leads to losing hope.
New Proposals By SEBI
It was back in October when SEBI announced its first set of Derivative market rules and now after 3 months, it has new proposals. While October’s changes were mainly related to the entry into this market where the barrier was made rigid so that not every trader could take part and only the traders with relevant experience and risk-appetite and risk-tolerance capabilities enter the market, these new proposals are mostly inclined towards tightening the volatility of the derivatives market which has increased significantly and even affecting the broader stock market.
- SEBI has proposed a market-wide position limit for single-stock derivatives to be linked to the cash markets
- This position limit has been proposed to be as low as 15% of the market capitalization on a free-float basis. Another way proposed is taking the average daily delivery value.
- SEBI also proposed certain criteria that the derivatives built on indices need to meet. This norm however doesn’t apply to the derivatives on benchmark indices Sensex and Nifty 50. The indices on which derivatives will be allowed must have –
- At least 14 constituents
- The combined weight of the top three stocks in the indices must be less than 45%
- The top constituents must be less than 20% in weight
- The market regulator also proposed the practice of pre-open sessions in the derivatives market which is currently only limited to the cash market. It will be starting with the current month futures only and applicable for both single stock futures and index futures.
Why is SEBI tightening the Derivatives Market?
The primary motto of SEBI is to reduce the risk that has been surging in the derivatives market with a lot of unmonitored trading, especially in the index derivatives segment. These changes can help in aligning derivatives risks with the risk present in the cash market which are the underlying of these derivatives. These norms will also help in curbing the manipulation of the derivatives market to a great extent.
Source: TheEconomicsTimes
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