What is derivative market? Mention measures that SEBI proposed to curb speculative trading in the index derivatives segment? Explain their significance.
Kartavya Desk Staff
Topic: Indian Economy
Topic: Indian Economy
Q5. What is derivative market? Mention measures that SEBI proposed to curb speculative trading in the index derivatives segment? Explain their significance. (250 Words)
Difficulty level: Medium
Reference: Indian Express
Why the question: The question addresses SEBI’s proposed regulatory steps to control the rising volumes of speculative trading in the futures and options market, particularly by individual investors, which is a current and relevant issue in financial regulation. Key Demand of the question: To define derivative market and outline the measures proposed by SEBI and explain their importance in promoting investor protection and market stability. Structure of the answer: Introduction: Briefly introduce Derivative market along with examples. Body: Give a linking statement about the SEBI proposal List the Proposed Sebi Measures: Increase the minimum contract size for index derivatives. Upfront collection of option premiums. Intraday monitoring of position limits. Rationalization of weekly index products. Removal of calendar spread benefit on expiry day. Rationalization of options strikes. Increase in margin near contract expiry. Explain the Significance: Enhances investor protection by reducing the risk of speculative losses. Promotes market stability by curbing excessive speculative trading. Encourages more informed and cautious trading practices. Conclusion: Conclude with a way forward.
Why the question:
The question addresses SEBI’s proposed regulatory steps to control the rising volumes of speculative trading in the futures and options market, particularly by individual investors, which is a current and relevant issue in financial regulation.
Key Demand of the question:
To define derivative market and outline the measures proposed by SEBI and explain their importance in promoting investor protection and market stability.
Structure of the answer:
Introduction:
Briefly introduce Derivative market along with examples.
Give a linking statement about the SEBI proposal
• List the Proposed Sebi Measures: Increase the minimum contract size for index derivatives. Upfront collection of option premiums. Intraday monitoring of position limits. Rationalization of weekly index products. Removal of calendar spread benefit on expiry day. Rationalization of options strikes. Increase in margin near contract expiry.
• Increase the minimum contract size for index derivatives.
• Upfront collection of option premiums.
• Intraday monitoring of position limits.
• Rationalization of weekly index products.
• Removal of calendar spread benefit on expiry day.
• Rationalization of options strikes.
• Increase in margin near contract expiry.
• Explain the Significance: Enhances investor protection by reducing the risk of speculative losses. Promotes market stability by curbing excessive speculative trading. Encourages more informed and cautious trading practices.
• Enhances investor protection by reducing the risk of speculative losses.
• Promotes market stability by curbing excessive speculative trading.
• Encourages more informed and cautious trading practices.
Conclusion:
Conclude with a way forward.