SEBI ask RBI to relax norms on FIIs to boost derivatives trade

SEBI ask RBI to relax norms on FIIs to boost derivatives trade
PRESS TRUST OF INDIA

JULY 30: Securities and Exchange Board of India (SEBI) has approached Reserve Bank of India (RBI) to allow foreign institutional investors (FIIs) to place purchase orders on derivative products like future options without bringing in foreign exchange upfront.

"We are talking to RBI for allowing FIIs to take position even if they don't have the equivalent balance in foreign exchange," SEBI chairman D R Mehta told PTI.

Mehta said SEBI was planning to introduce three more derivative products -- options on index and individual stocks and covered warrants by September this year. BSE and NSE have already started trading in derivatives in June this year through index futures.

The SEBI chief said FIIs have been shying away from investing in derivatives due to the RBI norms on foreign portfolio investors leading to low turnover in the derivatives segment. FIIs, the prime movers in equities market, have not been bullish in derivatives so far. Mehta said before the new derivative products are brought to the market, SEBI was working in boosting the volume of trade in this segment from the present Rs 10-12 crore daily average.

"Moreover, the non-existence of mutual funds and retail investors in the derivatives segment are also affecting the volumes," Mehta said.

Some mutual funds are not trading in derivatives as they are yet to get clearances from their trustees for investing in them. Mehta said SEBI had taken up the issue with the apex organisations including Association of Mutual Funds in India (AMFI) recently and the funds have been asked to expedite the process.

Retail investors are also virtually absent in this segment as the minimum order required to be placed in derivatives is Rs two lakh, he added.

"Only a handful of financial institutions are operating in the market," he said. About the three new derivative products, Mehta said the J R Varma Committee was working out the modalities and the products would be ready within a month or two.

The committee will laid down the risk containment measures of the derivative products. Trading in derivatives, which were banned in India, has been legalised through the amendment of Securities Contract Act last fiscal year.

On the wide differential between the Sensex futures quote of 4,831 for July and current Sensex level of 4,200 mark, the SEBI chairman said market volatility was prevailing in all parts of the world but the Indian market was still safe from the regulation point of view.