Rising salience of derivatives market

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Rising salience of derivatives market

There is much volatility(अस्थिरता/परिवर्तनशीलता) in the rupee exchange rate lately(हाल ही में), and it underlines the need for a vibrant currency futures and options market; we need a more complete derivatives market across asset classes for bonds, equities, currencies, interest rates and commodities(माल) to better manage intrinsic(वास्तविक/स्वाभाविक)risks. It is welcome that markets regulator Sebi has initiated(आरंभ करना/शुरू की) the process to greatly increase trading time for derivatives, and has also reportedly written to the Centre to rationalise(औचित्य-स्थापन/सिद्ध करना) tax on the instruments going forward. But rigidities(कठोरता/दृढ़ता) remain. There is a case to rethink tax policy, margin requirements, position limits, documentation levels and other regulation, so as to remove friction(टकराव/मनमुटाव)and bring about a thriving onshore derivatives market here. Otherwise, the market would move offshore, to the detriment(हानि/शुल्क) of jobs, skills, investments and optimal resource allocation. The point is that financial services like derivatives are a skill and technology-intensive business in which we in India have a competitive(प्रतियोगी/प्रतिस्पर्धात्मक) advantage, and it is vital that we remove policy hurdles that constrain the derivatives market.

A thriving financial sector can shore up resources for the real sector. It is notable that banking regulator RBI has, of late, been proactive(सक्रिय) to boost the currency derivatives market. In its monetary policy review in February, the RBI increased the position limit for exchange-traded currency derivatives to $100 million per user, it has proposed new products like interest-rate swaptions. Sebi wants securities transaction tax (STT) in the derivatives segment rationalised. The way forward, surely, is to do away with the tax on derivatives. Substantial banking reform depends on developing a thriving(संपन्न) bond market, which, in turn, calls for a fully formed market for derivatives to hedge against risks on currency, interest rates, commodity prices and credit default.Sebi is right to move against STT, but is introducing transaction costs of its own, by asking for physical settlement of underlying assets in derivatives trading. There is no room for such schizophrenia(एक प्रकार का पागलपन।).


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Important Vocabulary

 

1.Proactive(सक्रिय)
Synonyms: aggressive, anxious, ardent, banzai, can-do

2.Friction(टकराव/मनमुटाव
Synonyms: agitation, erosion, irritation, resistance, abrasion
Antonyms: agreement, harmony, peace

3.Detriment(हानि/शुल्क)
Synonyms: damage, disability, disservice, drawback, handicap
Antonyms: advantage, aid, benefit, blessing, boon

4.Thriving(संपन्न)
Synonyms: booming, burgeoning,, developing, flourishing, growing
Antonyms: failing, infirm, poor, unhealthy, declining