Editorial : Sebi, rethink physical delivery of derivatives

Capital markets regulator Sebi wants mandatory(अनिवार्य/बलपूर्वक) physical settlement of stock derivatives going forward, albeit(यद्यपि/हालांकि) in a phased manner. It needs to promptly(तुरंत/ठीक समय पर) reconsider. Compulsory physical delivery of equity(निष्पक्षता/औचित्य) derivative contracts would quite needless jack up transaction costs, add to attendant rigidities(कठोरता/दृढ़ता), make the domestic derivatives market further uncompetitive and move such contracts increasingly(वृद्धि /विस्तार से) abroad.The practice is that equity derivatives are cash settled, which implies(का तात्पर्य/संकेत करना) that the difference between entry price

and the exit price is either debited or credited in cash. Sebi has maintained(बनाए रखा) that the settlement move is designed to curb(नियंत्रण/प्रतिबंध) speculative(काल्पनिक/विचार योग्य) trading. A recent study did find that the ratio of turnover in equity derivatives to the cash segment stood at 15:1, which suggests that 15 trades in derivatives were being conducted for every cash market trade. But, surely, the way ahead is to use tools like higher margin(लाभ) requirements and sound regulation, and not insist on physical delivery of shares.

The point is that there would be multiple complexities(जटिलताओं) with mandating physical settlement, which anyway is a far more expensive method of reconciliation(सुलह/मेल-जोल), and would merely(केवल/सादे तौर पर) end up moving significant volumes to the derivatives market abroad. Delivery settlement can well boost securities transactions tax (STT) collections, but which is clearly questionable now that we have long-term capital gains tax on equities. At present, the cash segment amounts to less than 10% of overall equity trading, but garners almost two-thirds of STT collections. And mandating delivery settlement for derivatives would mean that the cash market would get more depth as stock lending and borrowing(उधार/कर्ज लेना) volumes rise. The bottom line is that compulsory physical delivery of stock derivatives makes little sense in what remains a turnaround market.

Important Vocabulary

1.Promptly(तुरंत/ठीक समय पर)
Synonyms: directly, expeditiously, hastily, instantly, quickly
Antonyms: slowly, late, negligently

2.Albeit(यद्यपि/हालांकि)
Synonyms: admitting, even if, even though, notwithstanding

3.Curb(नियंत्रण/प्रतिबंध)
Synonyms: barrier, ledge, rein, restraint, restriction
Antonyms: freedom, center, encouragement, inside, interior

4.Merely(केवल/सादे तौर पर
Synonyms: hardly, only, purely, simply, solely
Antonyms: indefinitely

5.Rigidities(कठोरता/दृढ़ता),
Synonyms: harshness, rigor, acerbity, austerity, cruelty
Antonyms: gentility, kindness, mildness