Securities and Exchange Board of India (SEBI) Current Affairs

SEBI allows Options Trading in Commodity Futures

SEBI has allowed options trading on futures contract of commodities. However, the capital market regulator has allowed the commodity derivatives exchanges to initially launch options on futures of only one commodity.

Salient Highlights

SEBI has put in place strict eligibility criteria for the commodity exchanges to start trading in options contract of commodities.

SEBI will allow options trading on futures contract of only those commodities that are among the top five in terms of the total trading turnover value of previous 12 months. Further, the average daily turnover of underlying futures contract of such commodities in the previous 12 months should be minimum Rs200 crore for agricultural and agri-processed commodities, and Rs1,000 crore for other commodities.

SEBI has asked the commodity exchanges to follow robust risk management measures. It has also come up with necessary guidelines with respect to the product design that need to be adopted for trading in options on commodity futures.

SEBI has mandated the commodity derivatives exchanges which are willing to commence trading in options contracts to seek its prior approval.

Background

Commodity Exchanges have been requesting SEBI for a long time to permit options trading in commodities be allowed. Last year, SEBI had agreed to permit options trading but some legal requirements remained unfulfilled.

Options Contract: It is a derivative product that offers an investor the right to purchase without any obligation to buy at the specified price/date.

Futures Contract: It is a contract between two parties where both parties agree to purchase or sell a particular commodity or any other financial instrument at a predetermined price at a specified time in the future.

SEBI

SEBI is the statutory regulator for the securities market in India established in 1988. It was given statutory powers through the SEBI Act, 1992. SEBI’s headquarters is in Mumbai, Maharashtra. SEBI’s mandate is to protect the interests of investors in securities, promote the development of securities market and to regulate the securities market. The Key function of SEBI is to regulate stock exchanges and other securities markets.

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SEBI notifies stringent insider trading norms

The Securities and Exchange Board of India (SEBI) has notified stringent revamped rules related to the Insider trading.

Insider trading refers to the trade of a company’s stocks or other securities and making unethical profits with access to the non-public information. This is detrimental to the other / small investors who don’t have such information.

In this regard market regulator has issued SEBI (Prohibition of Insider Trading) Regulations, 2015. Thus, revamping nearly two-decade old regulations on insider trading.

The key facts about new rules are as follows:

  • It highlights greater clarity on concepts and definitions along with a stronger legal and enforcement framework for prevention of insider trading.
  • The new rules has expanded the definition of insider. It says that that anyone who is in contractual, fiduciary or employment relations with the promoters will be presumed to be ‘insiders’. Thus, the new rules include the immediate relatives of promotes, directors and employees who are in possession or have access to such information, within the scope of insiders.
  • The new rules make it mandatory that the perpetual insiders such as promoters and directors will have to disclose their future trading plan in advance to the stock exchanges. They are required to trade strictly as per that plan in order to protect the interest of investors
  • The definition of the unpublished price sensitive information (UPSI) has been broadened. Earlier, it has reference to only to company but now, it will have reference to company as well as securities.

Background

The rules have been prepared after taking into consideration recommendations of Sodhi panel and other panel recommendations.

It should be noted that a panel headed by former Justice N K Sodhi (former Chief Justice of Karnataka and Kerala High Courts) had submitted its report on insider trading norms in December 2013.

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