Market regulator Securities and Exchange Board (Sebi) on Tuesday called for reforms in the underlying market and said regular issuance of Government bonds across maturities can go a long way in achieving this by way of increasing liquidity.
“The success of the derivatives market is dependent on the underlying market, which has to be liquid. There have to be reforms in the underlying market as well. There should be regular issuance of Government bonds across maturities to make the underlying market of interest rate futures more liquid,” Sebi Chairman UK Sinha said.
Sinha was speaking at the launch of interest rate futures (IRFs) on the National Stock Exchange. He refused to take a question on media reports which said that he got a two-year extension. Sinha said almost 34 per cent of the public bonds issued by government were held by the banking system. Unless they participate, any produce has little chance to succeed, he said, adding that the three earlier attempts in last 11 years to launch these products failed.
Sinha said the regulator is also looking into how to provide more liquidity, specially in repo market and the linkage between the currency the interest derivatives market. He pointed out that some of the measures the regulator has taken in last fiscal, which led to lower volumes in the currency derivatives market, will also be looked into. “Going forward, I would also hope RBI, Sebi and exchanges together to look at what is needed for development of corporate bond market,” Sinha said.
‘New consent norms are in accordance with law’ Sebi Chairman UK Sinha on Tuesday strongly defended the new consent settlement mechanism norms, which were issued early this month with retrospective effect, saying he is sure the new rules are in accordance with the law and that they will stand legal scrutiny.
“Our policies are valid and legal, and they will stand the legal scrutiny...let’s also not forget that the point of settlement or consent proceeding has been on our table since 2007. Some people have challenged that in various courts and we have a few judgements in our favour,” Sinha said.
He was speaking to reporters on the sidelines after launching the interest rate futures by the largest bourse NSE. Sinha also pointed out that though the original Sebi Act does not directly mention about consent proceeding or settlement proceeding, the 2002 amendment of the Sebi Act does it.
“So, our suggestion to the Government was that when the Sebi Act was getting amended, to avoid any controversy and provide certainty, let us also specially mention about the consent mechanism and accordingly it has been effective as by way of clarification from 2007-08,” Sinha said.
It can be recalled that on January 9 this year, after a gap of over 18 moths, the Sebi had issued the final norms governing consent settlement under which it barred cases involving serious offences out of the purview with retrospective effect-- from April 20, 2007, the day when Sebi’s existing consent settlement system was introduced.