SEBI's Stand on Ultra-Short-Term Derivatives and Market Health

SEBI has raised concerns over the dominance of ultra-short-term derivatives, warning about their adverse effects on India's capital markets. SEBI encourages extending the tenure of these products, aiming for a balanced market and promoting robust capital formation. The regulatory body stresses the importance of stakeholder engagement and improved investor trust.

The Securities and Exchange Board of India (SEBI) expressed concern over the rising dominance of ultra-short-term derivatives, stating that such trends could negatively impact the health of India's capital markets. In response, SEBI is considering steps to extend the tenure and maturity of these financial products.

In a speech at the 11th Capital Markets Conclave, SEBI Whole-Time Member Ananth Narayan highlighted the imbalance caused by short-term derivatives, particularly expiry-day index options, dominating equity derivative volumes. He emphasized the necessity of deepening cash equities markets and enhancing the quality of the derivatives market.

SEBI has already implemented measures to regulate this space, and while early signs of moderation are visible, Narayan stressed continuous stakeholder engagement for sustainable capital formation and market health. He also called for industry cooperation to improve transparency and trust across various asset classes, ensuring a dynamic and trustworthy market ecosystem.

(With inputs from agencies.)