India’s securities regulator is considering allowing professional portfolio managers to take unhedged short positions in equity derivatives for the first time, potentially giving money managers greater flexibility to profit from falling share prices, according to a report by Bloomberg.
The Securities and Exchange Board of India (SEBI) has proposed allowing portfolio management service providers to hold unhedged short positions in equity derivatives equivalent to as much as 50% of a client’s assets under management.
The regulator is also considering increasing the overall derivatives exposure limit for portfolio managers to 1.25 times a client’s funds, according to a discussion paper published on Thursday.
The proposals would mark a significant change for India’s professional money management industry, where portfolio managers are currently generally restricted to using exchange-traded derivatives for hedging cash positions and rebalancing portfolios.
SEBI has also proposed limiting the premium paid or received from options trading to 10% of a client’s assets.
The regulator is seeking public feedback on the proposed changes until 13 August.
The proposals come as SEBI has tightened its scrutiny of retail derivatives trading in recent years following concerns over significant losses among individual investors.
The approach suggests the regulator may be willing to give professional investors greater flexibility in derivatives markets while maintaining tighter controls on retail participation.
SEBI said the proposed changes reflected the “maturing investment experience and growing demand for personalised solutions” among portfolio management clients.
If implemented, the changes could create new opportunities for professional money managers to express bearish views through derivatives and potentially encourage the development of more sophisticated long-short investment strategies in India’s equity market.
