MUMBAI (Reuters) -India’s markets regulator on Monday proposed a phased approach to restructuring existing equity indices that are linked to derivatives contracts to prevent market manipulation.
Analysts expect these changes to make the indexes less prone to external interference, a key focus against the backdrop of a regulatory order last month that had temporarily barred U.S.-based firm Jane Street for its trading activity in a key index.
The proposal, first floated in May, seeks to restructure the two indexes of banking stocks – NSE’s Nifty Bank and BSE’s Bankex – as well as Nifty Financial Services in a phased manner.
The Securities and Exchange Board of India (SEBI) had suggested the indexes would need to have at least 14 stocks and top constituents’ weightage cannot be more than 20%. The total weightage of top three constituents cannot be more than 45%.
Last month, the market regulator had alleged Jane Street used its trading strategies to “manipulate” Bank Nifty, an index of 12 banking stocks.
The top two constituents of the index are HDFC Bank and ICICI Bank, with a weightage of 29.09% and 26.47%, respectively.
In its May circular, the regulator had not clarified whether exchanges had to introduce new indexes and discontinue or restructure existing ones, and asked them to submit revised proposals within 30 days for its approval.
The National Stock Exchange of India (NSE) informed the regulator that market participants had suggested restructuring the existing indexes instead of launching new ones, SEBI said.
This would ensure continuity and avoid disruption in derivative contracts linked to these indices, the regulator added.
BSE had told the regulator it can achieve the proposed adjustment to its index in one go, SEBI said.
The regulator has invited feedback from the market on its proposals till September 8.
(Reporting by Jayshree P Upadhyay; Editing by Leroy Leo)
