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Derivatives

Indian Regulator Set To Increase Derivatives Limits

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The Indian regulator is reportedly preparing to increase limits for domestic futures positions, which is expected to trigger a surge in over-the-counter derivatives volumes.

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The Indian regulator is reportedly preparing to increase limits for domestic futures positions, which is expected to trigger a surge in over-the-counter derivatives volumes. The major demand is for so-called market access products sold by international houses, which give foreign clients exposure to India's equity market. Pratip Kar, executive director of the market regulation department at SEBI in Mumbai, did not respond to messages.

The diversity and volume of equity derivatives, however, has been subdued because of a cap of USD20 million for domestic index futures positions and USD10 million for single-stocks per foreign investor. These limits restrict the hedging capabilities of funds. Over the last couple of weeks the Securities and Exchange Board of India has given indications that it plans to substantially increase, or even remove these limits later this year, according to officials familiar with the plans. "This will make it easier for funds to hedge their positions," said an equity head at a bulge bracket house.

One equity derivatives trader said that if hedge funds have greater access to futures they will likely become even more active in Indian equities. Traders expect to see an increase in funds applying for foreign institutional investor status once the regulations are changed. Typical plays could include buying synthetic market access shares and shorting index or single-stock futures. "This market is promising--I hope the regulators have the confidence to make further changes," said one equity trader.

 

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