NEW DELHI, June 2: The Securities and Exchange Board of India (Sebi) committee on regulation of derivatives trading is in favour of giving freedom to the stock exchanges to decide on the nature of derivatives they want to introduce.

This would be applicable to exchanges which fulfil the terms and conditions laid down by Sebi.

The exchanges are likely to be left free to decide what derivative products they would like to introduce. These derivatives could be based on equity (as prevalent in Australia) or the stock exchange index or even forward contract in foreign exchange.

This, according to industry sources, has been decided as it was felt that the regulator should not get into the choice of derivative.

The committee which is meeting in Mumbai on June 5 is likely to discuss the modalities of this arrangement with market intermediaries including banks, financial institutions, foreign institutional investors, custodians and merchant bankers.

The committee has also decided not to recommend a separate exchange system for trading of scrips as well as derivatives. This is a departure from some of the derivative exchanges in emerging markets -- as in Hong Kong, there is a separate exchange for derivatives as well as stocks.

By introducing trading of scrips and derivatives on the same exchange, not only can the cost of additional infrastructure be avoided, but also the same margin system can be used, said sources. However, the risk factor is likely to increase as trading can be manipulated, they added.

The committee is also scheduled to meet on June 6 in Mumbai where the draft report on derivatives trading is likely to be circulated for discussion. The committee is expected to meet at least once more before the draft report is finalised by the end of this month, sources added.

The last meeting of the committee was held on May 9. The committee is also of the view that there should be a separate cell with SEBI to regulate the derivatives trading.

The committee which is headed by the former SEBI board member L C Gupta also has Bombay Stock Exchange (BSE) president M G Damani, R H Patil of the National Stock Exchange (NSE), Delhi Stock Exchange's (DSE) executive director S S Sodhi, Uday Kotak, vice-chairman of Kotak Mahindra Finance on the panel.

Others on the committee include Crisil managing director R Ravimohan, former BSE executive director M R Mayya, Ajay Shah and director ICICI Percy Mistry.

Copyright © 1997 Indian Express Newspapers (Bombay) Ltd.