SEBI may review margins for longer-tenure F&O contracts

SEBI, India's securities regulator, is contemplating adjusting margin requirements for longer-term derivative contracts to stimulate increased participation in futures and options (F&O) trading, according to its Chairman, Tuhin Kanta Pandey. Speaking at the SBI Banking & Economics Conclave, Pandey expressed the regulator's openness to potentially lowering these margins for contracts with longer tenures.

This proposed change is part of SEBI's broader strategy to enhance market accessibility while ensuring investor protection. Pandey emphasized that "ease of doing business and investor protection are not competing objectives," asserting that "optimum regulation can reduce unnecessary friction." The regulator's focus is on making markets more accessible without compromising the trust that underpins these markets.

SEBI's concerns are particularly relevant in the context of risks associated with equity derivatives, especially for retail investors involved in leveraged positions and high-frequency trading. The regulator is also evaluating whether India's financial markets are deepening and becoming more liquid, as well as whether they are accumulating sufficient pools of long-term capital.

Pandey stressed the importance of informed participation as more investors enter the market, highlighting that India's expanding economy necessitates diverse forms of capital for various purposes and durations. He suggested that banks and capital markets should be viewed as complementary elements of the country's overall financing ecosystem.