30th May 2025 (11 Topics)
SEBI’s Reforms in Derivatives Market
Context
SEBI has issued a circular introducing major changes to the regulatory framework for equity derivatives, including a new metric for measuring exposure and revised position limits, in response to rising retail participation and expiry-day volatility.
1. About SEBI
- Statutory Body established under the SEBI Act, 1992.
- Functions include regulation of securities markets, protection of investor interests, and promotion of market development.
2. What Are Derivatives?
- Financial instruments whose value is derived from an underlying asset (e.g., stocks, indices).
- Used for hedging risk, speculation, and arbitrage.
- Types: Futures and Options.
3. Key Reforms by SEBI (2024
|
Reform Area |
Details |
|
Risk Measurement |
Introduction of Future Equivalent Open Interest (FutEq OI) using delta to quantify actual market exposure. |
|
Market Wide Position Limit (MWPL) |
Revised formula now considers: |
|
F&O Ban Rules |
Traders must reduce positions daily during ban; no increase allowed. Objective: Curb manipulation in illiquid stocks. |
|
Index Options Exposure |
Trader limit: |
|
Intraday Surveillance |
Exchanges must monitor multiple times a day, not just end-of-day. Flags abnormal build-up in positions. |
|
Pre-Open Session for Derivatives |
Similar to cash market. Aims to improve price discovery at market open. |
PYQ:With reference to the ‘Securities and Exchange Board of India (SEBI)’, consider the following statements: (2018)
Which of the statements given above is/are correct?
|
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