Investors doing futures and options (F&O) trading in the stock market may soon see a big change. Market regulator SEBI no longer wants to be limited to just weekly and monthly contracts, but is also preparing to promote long-term F&O contracts. It is believed that this step may change the way of trading and investors may get new options for risk management.
SEBI Chairman Tuhin Kant Pandey had recently indicated that there is a need for long-term contracts in the Indian derivatives market. The regulator believes that there is excessive short-term trading and speculation in the current F&O market. If long-term contracts are introduced, investors will be able to hedge their long-term investment strategies in a better way.
Experts supported, but kept conditions
Market experts have welcomed this proposal of SEBI. However, he says that merely starting new contracts will not be enough. For this, liquidity will have to be increased, the number of market makers will have to be increased and participation of institutional investors will have to be ensured. Only then will this model be successful.
Margin rules biggest challenge
Experts say that at present the margins on long-term F&O contracts are very high, increasing the costs for investors. If SEBI simplifies and rationalizes margin rules, long-term contracts may become more attractive. There is also a need to review Securities Transaction Tax (STT) and other transaction costs.
Can start with index
Market experts believe that initially long-term contracts can be started on Nifty, Sensex and other major indices. The volatility of these indexes is relatively low and the possibility of price manipulation is also less. Later these can be extended to selected large and liquid shares.
Will the way of trading change?
Long-term F&O contracts may not become as popular as weekly expiry contracts, but they can prove to be a strong risk reduction option for long-term investors, mutual funds, pension funds and large institutional investors. If SEBI moves in this direction, a new era may begin in the Indian derivatives market.
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