Options Trading Is Possible Due To The New Regulatory Framework, Thanks To SEBI

by Vinaya HS on July 29, 2017

in Finance

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Securities and Exchange Board of India or SEBI has finally come up with a necessary reform of the commodity market by introducing permission to exchanges so that they can launch options contracts. In a move that will help the domestic market of products dig deeper than ever with farmers and other small players of the market getting the necessary hedging tool, this move will inevitably reduce the cost significantly. Licensing is surely becoming easier with a single-license paradigm entering the fray. Now, stockbrokers will be dealing directly with commodities.

The Shift In Stock Exchanges

The multiple stock exchanges will witness this change. For example, the Multi Commodity Exchange or MCX will begin equities trading very soon while the BSE as well as NSE option chain, the nifty options will be moving towards the domain of commodity derivatives. As per the press conference, it is understood that options trading will be vastly different from equity derivatives since option trading is not settled by cash. Detailed guidelines are yet to arrive, but more announcements are on the cards regarding cases of mutual funds, public offerings and the corporate bond.

A New Status To Individual Businesses

Non-banking finance Companies or NBFCs will be granted QIB or Qualified Institutional Buyer situation in an unprecedented move due to this new regulation. These companies currently have a net worth of 500 crores or more, and with this move, these companies will be moving upwards with greater emphasis than ever on IPO market. So, from 15 percent reservation, the companies now have 50 percent of the total issue size kept for the QIBs. Moreover, any IPO generating more than 100 crores will be under the scanner of a monitoring agency to get adequate supervision.

Stricter Cash Regulation

IPOs are feared to syphon off the capital raised or gained in this process. Hence, the stricter rules justify that fear. However, it has also shown tendencies to allot norms preferentially to particular financial situations such as nifty options as well as banks. The preferential allotment, in fact, becomes much easier as both participating entities such as nse option chain and the shareholders now have more freedom regarding share exchange. However, NRIs are not allowed to benefit the market as such. Although legal actions are not yet chalked out, it is already there in the issued regulation. Mutual funds can now be bought using digital money, interestingly enough.

A Conservative Approach To An Extent

As per the latest legal news, SEBI has limited mutual fund investment to 50,000 per fund for each financial year, and such investments can only be redeemed by someone who holds a particular bank account. No reward points will be allowed as payment methods. Such moves are conservative, to say the least as liquid schemes are given faster redemption options. Mutual funds being the primary concern in this regard, introducing and encouraging liquidity may have a significant impact on the market that can radically alter the way it functions. The bond market may well get a necessary boost, but what happens to the overall corporate scenario is yet to be seen.

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