Mumbai: As Indian stock markets remain volatile, the Securities and Exchange Board of India (Sebi) is examining whether the rules and trading norms in place are sufficient to mitigate risks from possible market manipulation or disproportionate unwinding of derivatives positions.

The regulator met top exchange officials and brokers last week to take stock of the situation and advised them to track the markets closely to ensure there is no foul play or excessive speculation in equities and derivatives trading.

Indian markets have been rattled by weak global markets and uncertainties hovering over emerging economies, notably China, which is battling slower economic growth and capital outflows.

Sensex, the 30-share bellwether index of the BSE, has been volatile. On 18 January, it fell by around 367 points, rose the next day by 291 points, and dropped 418 points on 20 January. Nifty, the 50-stock benchmark of the National Stock Exchange, ended 87 points lower on 18 January, climbed 84 points the next day, and declined 126 points.

So far in 2016, the Sensex has fallen 6.25%, while the Nifty has retreated 6.42%.

Last week, Sebi submitted a status report on the market and existing risk management systems to a concerned finance ministry.

Earlier, in its meeting with exchanges and other market infrastructure institutions, the regulator discussed existing risk management systems to see if the they are adequate and whether norms on open interest position limits and circuit filters for stocks and indices have to be reviewed.

“Sebi discussed the prevailing situation and the existing checks and balances. So far, Sebi has not got any alert on (higher) risks or manipulation, which may require a review of the existing norms on position limits, margins or circuit filters," said one of three persons familiar with the developments who spoke on condition of anonymity.

This person and another, who are both actively involved in the regulator’s market surveillance responsibilities, said that during the past three weeks the regulator had increased its vigilance over the surveillance systems of exchanges.

“The regulator is keeping a watch for manipulative activity that could take advantage of the prolonged volatility in the markets," said the second person, who added that Sebi also briefed the finance ministry last week, particularly “on days when the markets saw a substantial drop".

Analysts say the choppiness in the markets will likely continue.

“The continued volatility in the markets is probably because India is not the one calling the shots; rather it is global peers. Currently, the market is being driven by fear, pessimism which is leading to the current market choppiness. For now, this is the course of business and we have to live with it," said Bhavin Desai, technical analyst at Motilal Oswal Securities Ltd.

Desai favours letting the market run its course.

Any regulatory measure to curtail it will have a cost attached to it, he warned, adding that the cost cannot be forecast at this point in time. In a sense, the volatility may be good for the markets as it reduces the chances of price aberration and the probability of major upswings and downswings, Desai added.

anirudh.l@livemint.com

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