India regulator to tighten stock derivative rules


The steps are aimed at preventing market manipulation following the explosive growth in trading of complex financial instruments. — Reuters

MUMBAI: India’s markets regulator is likely to tighten rules for stocks to be eligible for derivatives trading and ask brokers and mutual funds to stop enlisting unregistered financial influencers for their marketing campaigns, two sources with direct knowledge of the matter say.

These steps, aimed at preventing market manipulation following the explosive growth in trading of complex financial instruments, are likely to come at the Securities and Exchange Board of India’s board meeting tomorrow, said the sources, who declined to be named as they are not authorised to speak to the media.

Earlier this month, the markets regulator said in a discussion paper that stock derivatives should have sufficient liquidity and trading interest from market participants, a move expected to weed out derivatives linked to illiquid stocks.

The notional value of options – derivative contracts that give investors the option of buying or selling a security at a fixed price at a future trade – traded in India more than doubled in 2023 and 2024 to US$907.09 trillion from the year before.

Most of the options trading in India happens on index option contracts.

While the regulator has so far not taken any steps to regulate index options, it is considering a series of technical tweaks, Reuters had reported earlier this month.

A surge in retail investors’ participation in equity markets during the Covid-19 pandemic led to a proliferation of influencers pushing financial advice on social media platforms. — Reuters

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