Indian regulator looks to SBL for derivatives success
13 September 2017 Mumbai
Image: Shutterstock
A 鈥渧ibrant鈥� securities lending infrastructure is a prerequisite for the successful expansion of India鈥檚 derivatives market, according to the 麻豆传媒 and Exchange Board of India (SEBI).
The acknowledgement came as part of SEBI鈥檚 latest discussion paper on growth and development of equity derivative market in India, which focused on issues surrounding physical settlement in stock derivatives.
In the paper, SEBI stated: 鈥淎 prerequisite for successful introduction of physical settlement of derivatives is efficient and transparent lending and borrowing mechanism in cash segment.鈥�
The board added that a 鈥渧ibrant mechanism鈥� for securities lending and borrowing is essential to avoid a short squeeze in the India鈥檚 financial markets.
SEBI also outlined its intentions to phase in physical settlement in stock derivative contracts with single stock contracts.
Single stock futures are expected to follow.
The Indian regulator added: 鈥淎nother perspective could be that the threat of physical delivery in stock derivative leads to better alignment, coupling and convergence between cash and derivative market鈥�.
As part of the discussion paper SEBI is requesting industry comment whether there is a need to have compulsory physical settlement in stock derivatives contracts.
It is also asking whether physical settlement should be done in a phased manner starting with stock options followed by stock futures.
SEBI is accepting comments on the the derivatives discussion paper until 25 September.
The acknowledgement came as part of SEBI鈥檚 latest discussion paper on growth and development of equity derivative market in India, which focused on issues surrounding physical settlement in stock derivatives.
In the paper, SEBI stated: 鈥淎 prerequisite for successful introduction of physical settlement of derivatives is efficient and transparent lending and borrowing mechanism in cash segment.鈥�
The board added that a 鈥渧ibrant mechanism鈥� for securities lending and borrowing is essential to avoid a short squeeze in the India鈥檚 financial markets.
SEBI also outlined its intentions to phase in physical settlement in stock derivative contracts with single stock contracts.
Single stock futures are expected to follow.
The Indian regulator added: 鈥淎nother perspective could be that the threat of physical delivery in stock derivative leads to better alignment, coupling and convergence between cash and derivative market鈥�.
As part of the discussion paper SEBI is requesting industry comment whether there is a need to have compulsory physical settlement in stock derivatives contracts.
It is also asking whether physical settlement should be done in a phased manner starting with stock options followed by stock futures.
SEBI is accepting comments on the the derivatives discussion paper until 25 September.
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