“Reforms in the securities market need to focus on fundamentally encouraging delivery-based customers, who buy on a cash basis, as the bedrock of the stock market. Therefore, we need to look at some of the frictional costs which are emerging for delivery-based customer in the market,” Kotak said in a Financial Markets Summit 2020 organised by CII.
He further explained that the derivatives market is more of a liquidity provider and catalyst for capital formation through which investors invest cash into the equity market.
Kotak sees the Securities and Exchange Board of India (Sebi) as a proactive and reform-oriented regulator. “Sebi has taken many steps to support the broking industry and improve the quality of the broking industry. Simplification of account opening through e-KYC is a true game-changer for broking, depository participants and mutual funds businesses,” he said adding that regulations on avoiding a potential conflict of interest at the client level is a move in the right direction.
While focusing on the secondary market, Kotak said it is extremely important to maintain balance in the cash market and futures market appropriately as more Indians are getting enthused to enter the equity market. “In the long-run, we want financial savings in the form of investors buying into equities and holding for a medium to long-term,” he added.
On LODR guidelines for listed companies, Kotak asked Sebi to look at how it can ease areas for promoters’ reclassification. He also suggested Sebi to review Open Interest limits, particularly for large institutional investors, which were put in place in March.
“The time may now be appropriate to review whether those limits and controls on the business being done on margin with reference to the contracts,” he said.
Earlier in March, Sebi had hiked margins in the cash segment for both F&O and non-F&O stocks, while institutions were asked to restrict their F&O positions in index derivatives segment to stay within the new criteria of cash and cash equivalents on the long side and value of stock holdings on the short side.