## India to Form Committee to Assess Risks from Derivatives Surge
India's top financial regulators are forming a committee to assess potential risks arising from the rapid growth of the country's derivatives market. The committee will also recommend policy changes if necessary.
The decision to form the committee comes amidst a significant surge in options trading in India, driven primarily by retail investors. The notional value of index options traded more than doubled in the last year, reaching $907.09 trillion.
The committee will be established by the Financial Stability Development Council, which includes the finance minister, the central bank governor, and the market regulator. Its members and reporting timeline will be finalized in the coming months.
Assessing potential systemic risks arising from the surge in derivatives trading.
Identifying the need for investor protection measures.
Evaluating the need for increased regulatory monitoring.
Investigating the correlation between the rise in small unsecured loans and options trading.
The committee will also examine whether funds lent by non-banking finance companies with broking arms are being used for capital market exposure. This comes as personal loans, whose end use is not monitored by banks, have been growing rapidly.
India's derivatives market is significantly larger than its cash market, with a notional value ratio of 422 times. This is the highest ratio globally, compared to the typical range of 5 to 15 times in most other markets.
The committee's findings and recommendations will be crucial in ensuring the stability and responsible growth of India's derivatives market.