The structured product market is in a tight spot as it faces possible disruption from SEBI’s upcoming rule on position limits in index derivatives. Valued at nearly Rs 35,000 crore, this market segment is seeking urgent relief from the regulator to continue operations smoothly.
What Are Structured Products and Why Are They in Trouble?
Structured products are investment instruments linked to market indices, offering tailored returns with some level of protection. However, the new F&O position limit regulations proposed by SEBI could severely restrict their use.
According to people familiar with the matter, representations have already been made to SEBI to exempt structured products from the long delta end-of-day position limits on index derivatives. These limits are intended to curb excessive speculation, but could unintentionally impact legitimate hedging activity by structured product issuers.
Industry Seeks Special Category Status
Market participants are also asking SEBI to classify structured products as a separate category. This would allow unrestricted positions when used for hedging, which is a core function of these instruments.
“If structured products are treated like regular speculative positions, the entire segment could become unviable,” a source involved in the discussions said.
What’s at Stake?
The future of Rs 35,000 crore worth of structured products could be in jeopardy if SEBI does not grant exemptions. This would not only affect financial institutions issuing these instruments, but also impact investors who rely on them for portfolio diversification and risk management.
What Happens Next?
SEBI has yet to make an official statement on the representations. With the compliance deadline approaching fast, market players are hoping for a swift and favorable decision. Until then, uncertainty looms large over the structured product landscape.