Options Trading Can't Be Sole Focus Of Market Rules: SEBI Chief

Options trading cannot be the sole consideration while framing market regulations, as India also needs to focus on attracting foreign portfolio investors (FPIs) and expanding passive investing, Securities and Exchange Board of India (SEBI) Chairman Tuhin Kanta Pandey said on Monday.

"It really depends on our success in terms of attracting FPIs, allowing the passive investing, which is already 30 percent of your market and we cannot just put out this thing on this issue just because some people want to do options trading in the way they want to do options trading," Pandey said.

Speaking on the sidelines of an event on cyber defence at the NISM campus in Patalganga, Pandey also said SEBI was moving with a "sense of urgency" to overhaul the securities lending and borrowing mechanism (SLBM).

SEBI To Bring SLBM Consultation Paper Soon

Pandey said a consultation paper on the proposed SLBM framework is expected "very soon".

"We must get to the reformed SLBM very soon," Pandey said, adding that a working group was already examining the proposed reforms. He also stressed that market participants would need to be heard before the consultation paper is released.

The SLBM revamp assumes significance as SEBI seeks to deepen a market that has historically faced limited participation and high borrowing costs.

Pandey said a more efficient securities lending framework could also help increase participation in the newly introduced Closing Auction Session (CAS).

"It will definitely help in CAS because the CAS would mean more participation, SLBM improves CAS participation," Pandey said.

The comments come shortly after clearing corporations NSE Clearing and BSE Clearing announced shorter-tenor three-day SLBM contracts aimed at increasing participation in CAS.

The shorter contracts are expected to facilitate greater securities lending activity around the closing auction and could support inter-exchange arbitrage, better price alignment and market efficiency.

‘CAS Is Here To Stay’

SEBI has been examining structural changes to make SLBM more accessible to a wider range of investors.

An earlier discussion paper had noted that the market was not adequately accessible to the widely dispersed retail segment and that limited participation had contributed to high borrowing costs. It had proposed exploring transparent online platforms and alternative business models to widen participation.

The upcoming consultation paper could address some of these constraints and seek to improve liquidity and participation in the securities lending market. A deeper SLBM market could also support short-selling activity and improve price discovery.

On CAS, Pandey said SEBI was analysing concerns raised by market participants and suggestions circulating on social media. However, the regulator does not intend to reverse the system.

"CAS is here to stay," Pandey said, adding that any changes would focus on addressing specific constraints or issues identified through the data.

Pandey also said SEBI had seen participation increase since CAS was introduced, while volatility and divergences between the Sensex and Nifty had declined.

The regulator continues to analyse unusual trading activity, particularly around expiry days, before deciding whether any changes are required.