The market regulator does not intend to introduce more measures to restrict activity in derivatives but there was a need to measure risks better, a senior official said on Saturday.

“Derivatives are good for the market ecosystem as they aid in price discovery and create depth in the market,” SEBI’s Whole-Time Member Ananth Narayan said at an event organised by NISM. “Most of the recent actions taken by the regulator on the F&O side was aimed at curbing activity in index options on expiry day. We are not in any hurry to follow up with any additional steps and will watch how things play out.”

He added that SEBI is not envisaging any steps on “suitability and appropriability”, to determine who can trade in the derivatives market.

• Read also: LIC outpaces industry and private insurers in 2024 new business premium growth

Narayan said there ought to be a semblance of balance between the cash and derivatives market. “We are trying to measure risk better in the derivatives segment. Having a lopsided market where the volumes in one segment (derivatives) dominates the other (cash market), could lead to conditions that lead to manipulation and unnecessary volatility,” he said.

According to him, open interest today is measured in terms of the notional value of futures and options put together. This may not be correct and the regulator is in discussions to move to a delta based matrix that would ensure that risk is measured correctly.

“This is a classical example of adding apples and oranges, the two are not equivalent. Moving to a delta-based matrix would ensure that we are measuring risk correctly,” Narayan said.

The regulator is also considering linking the market wide position limit to the average daily delivery volumes in the cash market on a dynamic basis. Currently the market wide position limit is 20 per cent of the free float.

“What we find in stock futures and options is that the actual risk being run in a particular stock is several times the daily average volume in the underlying stock,” Narayan said. “When you have indices trading in F&O should there be restrictions on how much weightage the top stocks should have. This is matter of discussion.”

• Read also: PLI scheme, subsidies detrimental to long-term growth of clean-tech sector: Goyal

According to Narayan, the way the exposure of mutual funds and AIFs in derivatives is measured is incorrect and can be made more realistic so that there is better understanding of what the risks in the system are.

An expert group under former RBI executive director G Padmanabhan is working on ease of doing business and better risk management, he said.