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.
