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L
C Gupta Committee
- Appointed on 18th November
1996
- To develop appropriate
regulatory framework for derivatives trading
- Focus on financial
derivatives and in particular, equity derivatives
- Submitted its report
in March 1998
- Approved by SEBI in
May and circulated in June 1998
Executive Summary
- Both Hedgers and speculators
required for efficient markets
- Equity derivatives
could begin with index futures
- Development in phased
manner
- Index Options and Options
on Shares to follow
- Main emphasis on exchange-level
regulation
- Stricter governance
by SEBI compared to Cash segment
- Stringent entry requirements
- Mutual funds should
be allowed to hedge
- Derivatives Cell, Advisory
Committee and Economic Research Wing to be set up within SEBI
Report Summary
- Substantive report
- Suggestive bye-laws
for regulation and control of trading and settlement of derivative contracts
Legal Amendments
- Securities Contract
Regulation Act
- Derivatives contract
declared as a ‘security’ in Dec 1999
- Notification in June
1969 under section 16 of SCRA banning forward trading revoked in March 2000
Survey Results
Committee conducted a
survey amongst:
| Brokers |
67 |
| Mutual funds |
10 |
| Banks/FIs |
14 |
| FIIs |
12 |
| Merchant banks |
9 |
| Total |
112 |
- Wide recognition of
need for derivatives
- Equity, Interest Rate
and Currency derivative products
- Stock Index Futures
most preferred
- Stock Index Options
second preference
- Options on individual
stocks third preference
- 70% respondents indicated
hedging as their activity
- 39% speculation/dealing
- 64% broking
- 36% option writing
- Multiple responses
were permitted in the questionnaire
- 3 month Futures were
most preferred
- American Options were
preferred over European Options
- 33% expected fast growth
in derivatives segment
- 41% expected moderate
growth
- 16% expected slow growth
Cash Market Suggestions
Committee has suggested
the following improvements:
- Uniform settlement
cycle among all exchanges
- Move towards rolling
settlement cycles
- Tighter supervision
- Speeding up demat
- Increase delivery transactions
Derivatives Exchanges
- Existing exchanges
may start Derivative segments or separate exchanges may be set up
- On-line screen trading
with disaster recovery site
- Per half hour capacity
should be 4-5 times the anticipated peak load
- Independent clearing
Corporation/House
- Online surveillance
capability
- Real-time information
dissemination over at least 2 networks
- Minimum 50 members
- Separate membership
for derivative segment - no automatic membership
- Separate governing
council for derivatives segment
- Common Governing Council
and Governing Board members not allowed
- Percentage of broker-members
in the council to be prescribed by SEBI
- Chairman cannot carry
on broking/dealing business during his term
- Arbitration and investor
grievances cells in 4 regions
- Adequate inspection
capability
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