The Securities and Exchange Board of India (Sebi) will discuss with market players about longer-tenure derivatives contract. Though there are no regulatory restrictions on introducing longer-term contracts, the regulator said it needs to understand what are the challenges that holds back market players on this front. Currently, derivatives contracts available in India expire on weekly and monthly basis.
“We need to discuss with market participants about what is holding them back (to introduce long-term derivatives),” Chairman Tuhin Kanta Pandey said in a press conference on Friday. The regulator will look to resolve the barriers after getting a better understanding about them, he added.
Pandey said that there should be “all types of products” in the market, but there is a need to understand the structure and relative incentive system. “We will have to have an in-depth discussion about this.” The chairman also said the regulator will release a study in July regarding the impact of derivatives in India.
Rajesh Exports case
When asked if Sebi is looking at any norms to reduce the risks of misleading disclosures by companies, the chairman said that there are different checks and balances and instrumentalities available.
The matter in the discussion was Rajesh Exports’ allegedly inflated revenue disclosures over five years. The alleged violations include misrepresentation of revenues worth nearly ₹15 lakh crore over five years, incorrect disclosures relating to the company and its subsidiaries, and purportedly false claims regarding investments in a gold mine in Africa. The matter remained under the radar until a shareholder flagged it to the regulator two years ago.
“The question is how do we improve our timing, how do we improve our capacities, how do we improve our system and data analytics in order to catch manipulations. Then at least we are able to be there faster” Pandey said. It is not possible to prevent such incidents.
It was also alleged that Rajesh Exports’ Chairman and Managing Director Rajesh Mehta was a member of the company’s audit committee, indicating a serious significant governance lapse. Some legal experts had suggested that regulators should adopt measures such as joint audits for companies having overseas subsidiaries. However, the chairman said that it will be “obtrusive” to companies to do so.
Pandey said that the regulator has to be mindful while revealing about its investigations to the public without giving companies enough time to explain what had happened. “Sometimes, we will be in the wrong if we don’t give them the opportunity.”
