To curb misuse, considering segregating prop, retail trades settlement: Sebi chief
Mumbai, January 30, 2024
Trading members who are doing prop trading are advised to specify the nature of the order — client or proprietary.
With an aim to check misuse of proprietary trading, the Securities and Exchange Board of India (Sebi) may look at segregating settlement of proprietary and retail trades, its Chairperson Madhabi Puri Buch said on Monday.
Proprietary trading, also called prop trading, is when a financial firm trades on stock exchanges using its own funds with an aim to gain profits. Trading members who are doing prop trading are advised to specify the nature of the order — client or proprietary.
“…should there be segregation of settlement of proprietary trades and retail trades? Right now, it is segregation of the collateral and so on. We can also look at the segregation of settlement (of (proprietary, retail trades) so that there is no netting between client and proprietor,” Buch told reporters when asked if Sebi was looking into the misuse of prop trading.
Buch said the stock broking industry has made a representation to the capital markets regulator, in which it has mentioned that brokers do have different revenue models and some of those may look like it is a misuse but it is not.
“We will analyse all of that in a very balanced way to separate the wheat from the chaff, and will find a way to make a win-win out of it,” she said at an event organised by Brokers Industry Standards Forum (ISF), which is tasked with setting standards of implementation of many regulatory initiatives.
To a query on the progress made on the extension of trading hours, Buch said there are very diverse views among various stakeholders and deliberations are still on. Last year, the National Stock Exchange (NSE) proposed to extend trading hours for index derivatives by three hours in the evening, as per the media reports.
She said Sebi will take into consideration views from market infrastructure institutions in the first stage, feedback from brokers in the second stage, and lastly from investors, on the issue before deciding the next step. “At the moment, the broking community itself is divided and there are a lot of discussions and deliberations going on, and they would be reaching some conclusion one day or another in some reasonable timeline,” she said.
The regulator has not reached the stage where it has sought feedback from investors, which requires a different level of consultation, Buch said. When asked about the recent decision by Sebi to close markets on January 22, to mark Lord Ram’s Pran Pratishtha celebrations, which has led to some criticism, the Sebi chairperson said the regulator had kept the market open on January 20 (Saturday) to square off their trading positions. “What was really important was that the investors should have an opportunity to plan their position and that the suddenness of the announcement of a holiday (on January 22) should not cause them any inconvenience.
“Therefore, we declared that Saturday would be an open day (for stock exchanges) so that if anyone had an issue such as they were planning to square off their position on Monday (January 22), when the market was closed, they would have an opportunity (on January 20),” she said.
Buch said there was no inconvenience caused to investors as stock exchanges were open on January 20.
[The Indian Express]
