NEW DELHI, Feb 9: The L C Gupta Committee report on initiating futures and options trading in India has called for tightening margin money requirements, capital adequacy norms and management system in the country's stock exchanges. The committee submitted the second part of its report to the SEBI on Monday. The report also contains a dissent note from the BSE president Damani.The committee will submit a third report within one-and-half months outlining the new by-laws that will have to be incorporated by SEBI before futures and options trading to begin in India. The regulations will lay down exact norms on the extent of capital adequacy and margin money payments that will have to be followed by players in the futures and options market.
According to the Union finance ministry, the report has suggested that the entire system of margin money payments be revamped before futures and options trading is allowed. Since there is a higher default risk in futures and options compared to the existing system oftrading in securities, the committee has recommended that there should be a substantial hike in up-front payments. The idea is to ensure that the players have a substantial initial stake in a forward transaction to minimise defaults.
The committee has also called for tightening the existing capital adequacy norms for those who opt to dabble in the futures and options market. The new norms, however, will be spelled out later.
Another important suggestion is to disallow operators in futures and options from being represented on the board of directors or management committees of stock exchanges. This will apparently ensure that these operators are not in a position to manipulate stock exchange authorities or privy to information that which can subsequent be used to leverege their positions in forward markets.
The focus of the second report of the committee is entirely on the ensuring that the trading system is safe, free from being tampered and does not collapse because of internal contradictions.
Thecommittee report is likely to open up forward trading in the entire securities market. Except for interest rates, foreign exchange and commodities, trading in almost all other financial instruments will be governed by the committee's report. Currently, forward trading, in a limited sense, is allowed in bonds and government securities, under the `SGL' account of the RBI.
Copyright © 1998 Indian Express Newspapers (Bombay) Ltd.
