Mumbai, Feb 13: The LC Gupta panel has called for the setting up of an on-going advisory committee on the derivatives market. This would naturally involve a greater co-ordination between Sebi and the Reserve Bank of India (RBI). In a presentation at the IOSCO-APRC meeting on "Development of derivatives market in India", O P Gahrotra, senior executive director of Sebi, said the derivative exchange would act as a self-regulatory organisation with Sebi acting as a regulator of last resort.Highlighting the committee's major recommendations, Gahrotra said it has advocated a separate clearing mechanism, qualified brokers and dealers, regulation of sales practices and a continuation of the on-going reforms in the underlying securities markets. Regarding the eligibility criterion for exchanges introducing derivatives trading, Gahrotra said existing stock exchanges could introduce this form of trading. A multiple derivative exchange model has been proposed for ensuring a competitive environment.
The committee hascalled for an independent governing board for the derivatives segment. This form of trading would have to be conducted on-line and a minimum of 50 members are needed.
A separate clearing mechanism for derivatives with a legal counterparty to all trades has been proposed. Guarantee settlement of all open positions, on-line surveillance capability and comprehensive risk management system has also been proposed.
For brokers and dealers, stringent entry norms, substantially higher capital adequacy and networth requirements, annual inspection of all brokers by the exchange and compulsory collection of margins from clients has been proposed.
Regulation of sales practices has been planned by the know-your-client rule, risk disclosure document, qualified sales personnel and a stringent code of conduct. Gahrotra said a phased introduction of derivative products has been planned.
Copyright © 1998 Indian Express Newspapers (Bombay) Ltd.
