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Derivatives trading after midyear, hints SEBI chief

The Securities and Exchange Board of India will approve the L C Gupta Committee the end of June, thus paving the way for commencement of derivative trading in the financial markets.

Moreover, SEBI will soon increase the number of scrips in which institutional trading will have to compulsorily take place in the dematerialised form.

Disclosing the above information at a seminar on derivatives organised by the National Stock Exchange in Bombay today, SEBI Chairman D R Mehta said that till date, over Rs 200 billion worth of shares had been dematerialised.

It may be pointed out that effective since January 15, 1998, SEBI has already made institutional trading in the demat form for eight blue chip stocks mandatory.

Mehta said that the regulatory framework governing the derivatives trading in the country will be a hybrid of the one followed by the Securities and Exchange Commission of the United States and the British model.

According to the SEBI chief, one school of thought was of the opinion that regulatory system of SEC was better as the British model relied too much on self-regulation. "However, in India, a mix of the two systems would be ideally suited for the markets," he opined. He further said that a separate governing board was essential for derivatives.

Mehta, however, maintained that derivative trading was a risky proposition as exemplified by the large number of scams such as Barings, Sumitomo, and Orange County. He said that stock exchanges felt that being self-regulatory organisations, they should be given the full freedom to manage the day-to-day functioning of the derivatives. He added that bourses enjoyed freedom in this regard but they should do so under the overall insight of SEBI.

Mehta pointed out that as a result of strict disclosure norms imposed by SEBI, it had become difficult for "fly-by-night operators" to raise money from the primary market. He said that some years back, SEBI was receiving over 100 offer documents a month, which has come down to a abysmal 8-10 documents these days.

"Easy norms may prove attractive for a year or so, but don't help matters in the long run," Mehta remarked, adding that the critics of SEBI have attacked the market watchdog both when the norms were lenient and now now when the laws are stringent.

He also said that till date financial institutions have spent over Rs 10 billion on technology upgradation.

UNI