Latest news with #FSR
Mint
a day ago
- Business
- Mint
Indira Rajaraman: Consider turfing out short-term equity derivatives
Jane Street. When the name surfaced in the financial press, it looked like a new designer clothing label. I discovered it was a trading house which had come into focus at the Securities and Exchange Board of India (Sebi), the equity market watchdog, for alleged manipulation. In focus was something called a Bank Nifty weekly options index (now closed), but there remain other weekly indices, run by the National Stock Exchange and Bombay Stock Exchange. Having never engaged with the stock market, either financially or academically, I had never peered at those instruments. But the compelling reason for not neglecting them now is that index options have entered the pages of the half-yearly Financial Stability Report (FSR) issued by the Reserve Bank of India (RBI), including the latest June 2025 issue. Financial Stability Reports are an outcome of the global financial crisis of 2008. The G-20, as a wider group of countries than the G-7, also emerged as an outcome of that crisis. The International Monetary Fund (IMF) exhorted member countries to issue periodic reports on their internal financial stability. In India, this responsibility fell to RBI. The FSRs of RBI are very well-written, and should be compulsory reading for all students of economics at any level. My sense, though, is that they are not very widely read (I hope I am wrong on this). Also Read: Somnath Mukherjee: Sebi's Jane Street order was the canary our market needed The FSR has to be optimistic overall, since any alarm bells could by themselves be triggers for financial instability. Wisely, RBI collects opinions by circulating a questionnaire among an anonymous panel of (unpaid) respondents as part of a Systemic Risk Survey, tabulated in an Annex of every FSR. This makes the FSR more broad-based than a document driven solely by analysis done within RBI. The FSR must necessarily do a wide-angle surveillance of financial markets and regulatory agencies, including Sebi. But RBI, as the banking regulator itself, must tread a thin line between advising what other regulators like Sebi could do to improve financial stability, while at the same time refraining from overt criticism. Also Read: The bumpy road of derivatives: Take a close look at Jane Street's potholed path to market riches The latest June 2025 report praises Sebi for its prompt action on a number of fronts. But some paragraphs are so important that they need to be quoted at length, like No. 1.38 of the report: 'The growing participation of individual investors and associated risks in the equity derivatives segment were highlighted in (the) June 2024 FSR. Since then, the SEBI has taken several important measures to strengthen this market segment, including but not limited to, rationalization of weekly index derivatives products, increase in tail risk coverage on the day of options expiry, ensuring expiry of all index derivatives products on single day of the week, increase in contract sizes, upfront collection of option premium from buyers, removal of calendar spread treatment on the expiry day and intraday monitoring of position limits. Consequently, between December 2024 and March 2025, the average daily traded value by individuals and number of individuals trading per month declined by 14.4 per cent and 12.4 per cent, respectively, compared to an increase of 47.6 per cent and 101.8 per cent, respectively, between December 2023 and March 2024." Also Read: Andy Mukherjee: Jane Street's secret sauce for Indian markets should be tested out While Sebi certainly deserves to be commended for its corrective actions, why allow weekly index derivatives at all, and especially open to retail participation? These complex financial instruments might be comprehended by enough individuals in New York or London to give depth to those derivatives markets, but here in India, do we really have enough individuals who know what they are plunging into? Most seem to be engaging in a market they don't understand, a blind gamble. It should not be surprising that mountains of losses have been suffered by individuals in the equity derivatives market. In currency markets, it makes sense to have derivatives, to iron out the volatility inherent in freely tradable currencies, about which we first learned from the work of Rudiger Dornbusch. But in equity markets, do weekly index derivatives do anything to reduce volatility? Do they not actually enhance volatility? Surely, we can have long-term equity futures (a horizon of one year or more) without weekly derivatives. Also Read: Jane Street: Gaming an outdated system is not necessarily illegal in India If, as the Sebi report of 2024 reported, the majority of losses are suffered by young participants from small towns, it is no surprise that real growth in the Indian economy is being held back by sluggish consumer demand. Equity derivatives, with that kind of participation, are a self-inflicted wound to the real economy. They distort choices among young earners in small-town India. After the seminal work of Daniel Kahneman, these kinds of policy mistakes should not have been made. Purchasing power has been diverted from current consumption, which could then have kick-started real investment by the domestic manufacturing sector. The Bank Nifty index covered a very small number of stocks and was therefore particularly vulnerable to manipulation. But the case for banning all weekly index derivatives is strong. Particularly at a time of falling interest rates, those options will become even more attractive. Equity markets are meant to encourage informed risk taking, not misinformed plunges into short-term derivatives of the kind still on offer on Indian exchanges. The author is an economist.
Arabian Business
3 days ago
- Business
- Arabian Business
European Commission to investigate ADNOC's acquisition of Covestro
The proposed US$15 billion acquisition of German chemical company Covestro by XRG, the international investment arm of Abu Dhabi National Oil Company (ADNOC) – the biggest acquisition ever by a Gulf company in Europe – will be delayed as the deal is now being investigated by the European Commission. The EC has opened an in-depth investigation to assess, under the Foreign Subsidies Regulation (FSR), the acquisition by ADNOC/XRG. The Commission said they were concerned that foreign subsidies granted by the UAE to the state-owned ADNOC 'could distort the EU internal market'. Covestro shareholders had given their go-ahead to XRG 's proposed deal in December 2024. EU probes ADNOC's Covestro takeover The Commission said that 'opening of an in-depth investigation does not prejudge the outcome of the investigation'. If the European Commission probe, which has a deadline of December 2 to issue a ruling, concludes that rules have been violated, the takeover could eventually be blocked unless ADNOC makes significant concessions. The Commission's preliminary investigation indicates that ADNOC and Covestro may receive foreign subsidies. The possible foreign subsidies include an unlimited guarantee from the UAE, as well as a committed capital increase by ADNOC into Covestro. The preliminary investigation felt that the foreign subsidies may have enabled ADNOC to acquire Covestro at a valuation and financial terms that would not be in line with market conditions, and which could not have been matched by unsubsidised investors. During its in-depth investigation, the Commission said it would assess… Whether the foreign subsidies that ADNOC may have received distorted the outcome of the acquisition process. ADNOC may have offered an unusually high price and other favourable conditions, which may have deterred other investors from making an offer. Whether such potential foreign subsidies may lead to negative effects in the internal market with respect to the merged entity's activities after the transaction.
Business Wire
25-07-2025
- Business
- Business Wire
AM Best Downgrades Credit Ratings of Oxford Insurance Companies' Members; Places Credit Ratings Under Review With Developing Implications
BUSINESS WIRE)-- AM Best has downgraded the Financial Strength Rating (FSR) to A- (Excellent) from A (Excellent) and the Long-Term Issuer Credit Ratings (Long-Term ICR) to 'a-' (Excellent) from 'a' (Excellent) for the members of Oxford Insurance Companies (Oxford). Concurrently, AM Best has placed these Credit Ratings (ratings) under review with developing implications. See below for a detailed listing of members and ratings. The ratings reflect Oxford's balance sheet strength, which AM Best assesses as very strong, as well as its strong operating performance, neutral business profile and marginal enterprise risk management (ERM). The rating action reflects the lowering of Oxford's ERM assessment to marginal from appropriate, which is directly related to the organization's elevated risk appetite and tolerance, when it uncharacteristically added large limit, multi-year policies covering loans related to judgment preservation in the form of financial guarantees. The line has since been discontinued and exposure to potential losses continues to be lessened via collateral and voluntary paydowns. However, these policies are longer tail by their nature and are often extended prior to maturity. AM Best's ERM assessment of marginal also considers the following: actions taken by management to move these contracts offshore pending customary regulatory approvals; the protracted distractions caused by these events; and the eventual unwinding of this new structure. Management's sub-optimal level of transparency to its stakeholders was also a factor in that the policies introduced were significantly out-sized relative to the business taken on by the unified pool, leaving the pool potentially exposed to approximately $1.2 billion in aggregate exposure. However, Oxford's management is in process of unwinding the policies previously ceded to a newly formed Bermuda cell company after the North Carolina regulator did not permit the transaction. As part of the sale to Brown & Brown insurance brokerage, an escrow fund is expected to be established covering up to $750 million of losses and expenses related to this business with only $15 million ceded to the unified pool in each of the next five years. Aside from the financial guarantee business, the vast majority of Oxford's business is very well managed with governance and ERM practices in line with its risk profile. Active cell surveillance and monitoring are required. The assessed framework component is comprehensive and in use throughout the rating unit, an infrastructure of approximately 500 active cells integrated via a unified pool. Cell oversight and management are intensive. Oxford uses operational controls, investment controls and collateralization to protect all cell owners. That said, however, Oxford's business profile assessment may be negatively impacted in the event the company is unable to retain existing members and/or attract new ones, in light of management's actions related to the handling of the judgment preservation/financial guarantee policies. AM Best expects that the Oxford companies will continue to generate strong operating performance and maintain very strong balance sheet strength across the platform and respective cells. The active cells remain very strongly capitalized individually and collectively with strong operations. AM Best will continue to monitor Oxford's unified pool for unexpected deviations in risk appetite and tolerance. The ratings have been placed under review with developing implications as Oxford's ultimate parent, RSC Topco, announced it is being acquired by Brown & Brown with a closing date in the third quarter of 2025. The developing implications status reflect potential risks if the impending acquisition does not close or materially changes, particularly as it relates to any changes in the business. This includes synergies to be gained by being part of a larger insurance group, as well as the benefits afforded by the newly anticipated escrow liquidity arrangement, which is intended to significantly mitigate Oxford's unified pool from a sizable aggregate financial guarantee exposure. The ratings will remain under review pending the close of the transaction and further discussions with management regarding any prospective changes to Oxford's current business and or future business strategy, any synergies to be derived from the transaction and any explicit financial support to be provided including the anticipated and formally executed escrow agreement prior to closing. The FSR has been downgraded to A- (Excellent) from A (Excellent) and the Long-Term ICRs to 'a-' (Excellent) from 'a' (Excellent) and placed under review with developing implications for the members of Oxford Insurance Companies: Oxford Insurance Company LLC Oxford Insurance Company TN LLC Oxford Insurance Company NC LLC Oxford Insurance Company MT LLC First Community Bankers Insurance Company, LLC
Indian Express
23-07-2025
- Business
- Indian Express
How RBI helps maintain the resilience of Indian economy
— Kannan K The Reserve Bank of India's (RBI) financial inclusion index, which captures the extent of financial inclusion across the country, improved to 67 in March 2025 compared to 64.2 in the corresponding period the previous year. The central bank has said that growth was witnessed across all sub-indices – access, usage, and quality – in FY25. Recently, in its half-yearly Financial Stability Report (FSR), the RBI also noted that the Indian economy remains a key driver of global growth, underpinned by sound macroeconomic fundamentals and prudent macroeconomic policies. At the same time, it has proposed the creation of a Financial Conditions Index (FCI), which would enable real-time monitoring of the country's financial health. As the central bank, the RBI plays a vital role in regulating the country's economy and promoting financial literacy. Let's explore its formation, evolution, core responsibilities, and contemporary issues. The RBI was established on April 1, 1935 via the Reserve Bank of India Act, 1934 based on the recommendations of the Hilton Young Commission. The bank was constituted with primary objectives of regulating the issue of currency, maintaining reserves, and operating the credit and currency system of the country. As a colonial institution owned by private shareholders, the RBI was nationalised in 1949, and its objectives were realigned with India's developmental goals. Following economic liberalisation of the 1990s, the RBI's role evolved further and became more facilitative in nature. There was noted a shift from direct control of foreign exchange rates and credit to a broader focus on monetary policy and systemic regulation. The RBI is governed by a Central Board of Directors appointed by the Government of India. The board comprises official directors (the Governor and up to four Deputy Governors) and non-official directors, including nominees from various fields, government officials, and representatives from the four local boards. All members are appointed for a period of four years. The RBI operates through 30 specialised departments, such as the Department of Currency Management and the Department of Banking Regulation, and maintains its presence across the nation through its central office and 33 regional offices. In a key reform in 2016, the Monetary Policy Committee (MPC) – a six-member statutory body – was established to control the level of inflation in the economy. In doing so, it uses tools such as repo rate – the rate at which the RBI lends money to banks. Headed by the Governor of the RBI, the MPC is mandated to meet at least four times a year. The body takes decisions on the basis of majority vote. Last month, the MPC announced a significant cut in repo rate by 50 basis points (0.5 per cent) to 5.5 per cent and reduced the Cash Reserve Ratio (CRR) by 100 basis points to boost growth prospects. The RBI acts as banker to both the Government of India and state governments, managing their banking accounts and debt. It is also the banker of all scheduled banks, and manages their accounts as well as facilitates inter-bank transactions. In addition, the central bank acts as a 'lender of last resort' for commercial banks, meaning it provides financial support to commercial banks that are facing severe liquidity issues, and prevents systemic crises. It has an important developmental role through the promotion of financial inclusion and awareness, and ensuring credit flow to various sectors via priority sector lending requirements. In essence, the RBI steers the Indian economy, effectively balancing both stability and growth. It makes use of a range of tools to achieve the goals of its monetary policy. The most important among them are: — Repo Rate: The rate at which the RBI lends money to commercial banks. It is a benchmark rate, meaning it acts as a reference point for commercial banks to set the interest rates. A lower repo rate makes borrowing cheaper and encourages economic activity, while a higher repo rate discourages banks from lending and controls inflation. Fixing the repo rate is the core responsibility of the MPC. — Reverse Repo Rate: The interest rate the central bank pays commercial banks when they park their excess cash is called the reverse repo rate. — Cash Reserve Ratio (CRR): The percentage of a bank's total deposits that it is required to maintain in liquid cash with the RBI. The RBI determines the CRR percentage from time to time. — Statutory Liquidity Ratio (SLR): Percentage of a bank's deposits that it is required to maintain in the form of liquid assets like cash, gold, or approved securities. — Marginal Standing Facility (MSF) Rate: The rate at which banks can borrow money from the RBI on an overnight basis in an emergency situation due to the lack of interbank liquidity. — Open Market Operations (OMOs): The RBI buys and sells government securities in the open market for the injection or absorption of durable liquidity in the banking system. An increase in the repo rate, SLR, CRR, and MSF reduces the money supply in the economy, helping in inflation control but slowing down growth. On the other hand, reducing these rates injects liquidity into the economy, stimulating growth but potentially causing inflation. Calibrating these monetary tools to strike the right balance between price stability and sustainable growth is one of the core responsibilities of the RBI. Moreover, there are challenges faced by the country's central bank, notable among them are the digitalization of the economy, the emergence of new financial technologies (fintech), and the growing threat of cyberattacks. The pace of innovations in the financial sector, such as in areas like digital payments, requires the central bank to swiftly build and deploy advanced supervision and regulation technology (RegTech and SupTech). In addition, maintaining the resilience of the Indian economy to withstand shocks, both global and domestic, remains one of the key responsibilities of the RBI. Notably, the RBI is actively developing regulatory frameworks for emerging technologies to enhance supervisory oversight for managing cyber and even climate-related financial risks, and strengthen capital and liquidity requirements for reinforcing overall financial sector resilience. It has also introduced initiatives like the digital rupee as a Central Bank Digital Currency (CBDC) to keep pace with evolving financial trends. This proactive approach ensures the central bank remains at the forefront of safeguarding India's economic stability. (Kannan K is a Doctoral candidate at the Centre for Economic and Social Studies, Hyderabad) Share your thoughts and ideas on UPSC Special articles with Subscribe to our UPSC newsletter and stay updated with the news cues from the past week. Stay updated with the latest UPSC articles by joining our Telegram channel – IndianExpress UPSC Hub, and follow us on Instagram and X.
Toronto Star
23-07-2025
- Business
- Toronto Star
HPQ's Pilot-Scale Fumed Silica Production Nears Commercial Viability
SEM analysis of Phase 1 Test #5 materials confirms successful scale-up and sets the stage for Phase 2 performance trials in August. MONTREAL, July 23, 2025 (GLOBE NEWSWIRE) — HPQ Silicon Inc. ('HPQ' or the 'Company') (TSX-V: HPQ, OTCQB: HPQFF, FRA: O08), a technology company driving innovation in advanced materials and critical process development, is pleased to update shareholders on progress from its proprietary Fumed Silica Reactor (FSR) pilot project, developed in partnership with PyroGenesis Inc. (TSX: PYR, OTCQX: PYRGF, FRA: 8PY1).
