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MUMBAI - India's markets regulator is likely to tighten rules for stocks to be eligible for derivatives trading and ask brokers and mutual funds to stop enlisting unregistered financial influencers for their marketing campaigns, two sources with direct knowledge of the matter said.
These steps, aimed at preventing market manipulation following the explosive growth in trading of complex financial instruments, are likely to come at the Securities and Exchange Board of India's board meeting on Thursday, said the sources, who declined to be named as they are not authorised to speak to the media.
Earlier this month, the markets regulator said in a discussion paper that stock derivatives should have sufficient liquidity and trading interest from market participants, a move expected to weed out derivatives linked to illiquid stocks.
The notional value of options -- derivative contracts that give investors the option of buying or selling a security at a fixed price at a future trade -- traded in India more than doubled in 2023-24 to $907.09 trillion from the year before.
Most of the options trading in India happens on index option contracts. While the regulator has so far not taken any steps to regulate index options, it is considering a series of technical tweaks, Reuters had reported earlier this month.
A surge in retail investors' participation in equity markets during the COVID-19 pandemic led to a proliferation of influencers pushing financial advice on social media platforms.
To ensure financial influencers do not mislead investors, the markets regulator has proposed that brokers and mutual funds stop associating with unregistered influencers.
More broadly, the regulator has formed a group of exchanges, brokers and mutual funds this week "to suggest any additional changes needed to remove risk of manipulation and ensure retail investors are protected against risks in options contracts," one of the sources said.
On Thursday, the board of the markets regulator will also consider changes to delisting rules to make it easier for companies to exit from stock exchanges.
(Reporting by Jayshree P Upadhyay; Editing by Mrigank Dhaniwala)