Brokers ask Sebi to rethink deliberate F&O place limits, CFO Information, ETCFO
Brokers have requested the nation’s capital markets regulator to rethink its proposal to limit place limits-the most quantity that an entity can maintain within the futures and choices (F&O) phase. In a communication to the Securities and Trade Board of India as a part of the suggestions course of, dealer our bodies have warned that this, together with the plan to revise the calculation of open interest-outstanding positions in a spinoff contract-could additional dampen buying and selling volumes within the futures and choices phase.
limits for choices
Brokers have urged the regulator to mix the proposed limits of ₹500 crore for choices and ₹1,500 crore for futures right into a single consolidated restrict and lift the general place cap to ₹7,500 crore, mentioned individuals conscious of the matter.Sebi had proposed capping the place restrict for a dealer or an entity at ₹500 crore for choices and ₹1,500 crore for futures in an try to stop massive gamers from controlling the market. The place limits have been first launched throughout Covid in 2020 to scale back market volatility. Brokers and merchants consider that the proposed limits are restrictive and will influence liquidity. Volumes in futures and choices (F&O) have already declined by half from their peak over the previous six months as a number of regulatory interventions have sought to curb extreme retail participation within the derivatives market.
Prop merchants
Brokers mentioned proprietary (prop) merchants, who’re among the many most lively within the fairness spinoff phase, have to be given the identical place limits as overseas portfolio traders (FPIs) and mutual funds (MFs). At the moment, prop traders-who use their very own capital to trade-are handled as purchasers. A number of world hedge funds have arrange store in India as prop merchants, and they’d be considerably affected if the ₹500 crore restrict is imposed on them, mentioned market members.
Excellent positions
Brokers are additionally urging Sebi to rethink its proposal to alter the way in which open curiosity is calculated. At the moment, OI is predicated on notional worth or the overall contract worth. The regulator needs to shift to a ‘future equal’ or “Delta-based’ strategy, which components within the choice’s value motion relative to the underlying asset. Whereas that is aimed toward enhancing danger administration and transparency, it might additionally end in decreasing open curiosity and result in decrease volumes. Underneath the proposed modifications, hedgers could also be unable to completely utilise their market-wide place limits due to the way in which delta is being factored into publicity calculations.This might unintentionally favour directional merchants (who wager on market actions) over hedgers (who use F&O to handle danger), mentioned brokers.
