SEBI’s Ananth Narayan’s focus on better risk measures in derivatives is a crucial step towards ensuring market stability and reducing the possibility of manipulation and excessive volatility.
Derivatives play a crucial role in the market ecosystem by aiding in price discovery and creating depth in the market. However, it is important to strike a balance between the cash and derivatives market to prevent any lopsided dominance that could lead to risks. SEBI’s move towards measuring risk better in the derivatives segment, by considering a shift to a delta-based matrix, is a step in the right direction.
Linking the market wide position limit to average daily delivery volumes in the cash market is also a strategic move to align risk management practices with market dynamics. Additionally, the regulator’s consideration of restrictions on weightage of top stocks in indices trading in F&O highlights the need for a more nuanced approach to risk assessment.
Furthermore, the exploration of more realistic measures for exposure of mutual funds and AIFs in derivatives could enhance transparency and understanding of risks in the system. The expert group under former RBI executive director G Padmanabhan focusing on ease of doing business and better risk management underscores the importance of continual improvement in regulatory frameworks.
Overall, SEBI’s emphasis on enhancing risk measures in derivatives is a positive development that will contribute to the long-term sustainability and resilience of the market ecosystem.
