Sebi Unveils Major Overhaul of Derivatives Rules to Streamline Compliance for Exchanges.
The Securities and Exchange Board of India (Sebi) has unveiled significant proposals aimed at reforming the regulatory framework surrounding exchange-traded derivatives. Announced through a consultation paper on May 14, these changes are part of Sebi’s broader initiative to facilitate a more streamlined “ease of doing business” for market infrastructure institutions. The proposed alterations aim to simplify compliance requirements, eliminate redundant regulations, and ease operational processes for stock exchanges and clearing corporations spanning equity, currency, commodity, and interest rate derivatives segments.
One of the most notable proposals is the removal of the “Close to the Money” (CTM) option series mechanism in commodity derivatives, which has been criticized for complicating the exercise mechanism for participants and generating uncertainties for option sellers. Sebi draws on the practices of leading global commodity exchanges that do not utilize the CTM option, suggesting that more straightforward in-the-money and out-of-the-money structures would enhance clarity for traders. Additionally, the regulatory body aims to enhance operational flexibility by allowing exchanges to advance expiry dates of commodity contracts, subject to conditions that require approval from the managing director, thereby diverging from the current 10-day notice rule.
Sebi further seeks to streamline oversight responsibilities, proposing that exchanges can outsource the operational aspects of position limit monitoring to clearing corporations through defined agreements. The regulator has also identified redundant requirements, such as the need for brokers without nationwide terminals to adhere to lower minimum capital norms and separate certification guidelines for derivatives dealers. These reforms underscore Sebi’s commitment to not only digitizing disclosures—shifting from traditional newspaper announcements to website-based reports—but also consolidating multiple circulars to enhance coherence, decrease overlaps, and clarify operational roles. Public comments on these sweeping reforms will be open until June 4, indicating an inclusive approach towards regulatory adjustments.
Source: The Economic Times
(Expert Note: This report was prepared by the Wealthova team.)