SEBI Chairman Tuhin Kanta Pandey suggests longer-tenor derivative products
He was speaking at the 22nd edition of FICCI’s Annual Capital Markets Conference
The Securities and Exchange Board of India (SEBI) is angling towards longer-tenor derivatives products to ensure they serve the purpose of hedging.
Tuhin Kanta Pandey, Chairman, SEBI, called for greater ‘quality and balance’ in the derivatives market, where trading volumes are disproportionately higher than the underlying cash segment.
While speaking at the 22nd edition of FICCI’s Annual Capital Markets Conference, Pandey stressed the possibility of a pilot platform for pre-Initial Public Offering (IPO) companies.
He expressed, “We have often stated that equity derivatives play a crucial role in capital formation, but we must ensure quality and balance. We will consult stakeholders on ways to improve, in a calibrated manner, the tenor and maturity profile of products, so that they serve hedging and long-term investing.”
The remarks followed the mounting losses for individual investors in derivatives trading and allegations of manipulation by global high-frequency trading firms. It sparked speculation that SEBI may discontinue weekly derivatives contracts, triggering a 7.7 percent decline in Bombay Stock Exchange (BSE) shares. Short-term contracts account for the bulk of exchange volumes.
However, Pandey ruled out such a step soon.
The Whole-Time Member Ananth Narayan G stated, “We are considering ways to improve the tenor and maturity profile of derivative products, so that they better support sustained capital formation and foster all-around trust in the ecosystem. This may also need to be achieved in a calibrated manner, giving the system adequate time to adjust.”
Pandey emphasised the need to deepen the cash equities market, where daily traded volumes have doubled in the past three years, though ‘much more needs to be done.’
Hinting at a pilot project for pre-IPO companies, he added, “In a booming IPO market, investors are eagerly anticipating what is next, yet pre-listing information is not enough for them to make an investment decision. Can we think of an initiative for a regulated venue where pre-IPO companies can choose to trade, subject to certain disclosures?”
A government official present at the FICCI Conference said the Ministry of Corporate Affairs (MCA) received details of such a proposal from SEBI. It would bring trading in unlisted markets under a formal mechanism, enabling tax collection on transactions. The project involved unlisted companies that come under the MCA.
Meanwhile, a similar mechanism was flagged by Pandey’s predecessor early this year to curb the grey market activity.
Inviting suggestions on facilitating fundraising, disclosures, and investor onboarding, Pandey asked the industry to identify emerging products and asset classes to boost demand and supply of capital.
The Chairman further highlighted the need to address the growing role of artificial intelligence (AI) in customer engagement, risk assessment and fraud detection. “We have to think of AI as an assist, not a substitute for judgment,” he remarked.
He also emphasised on faster rumour verification and clearer communication with investors.