Securities and Exchange Board of India (Sebi) chairman C B Bhave criticised market intermediaries for devising innovative products that concealed high leverage.
Bhave said, ''Because leverage is risky and because regulators tend to control leverage, market intermediaries are continuously trying to devise ways to increase leverage,'' He was speaking at a financial seminar organised by the Symbiosis Institute of Business Management.
Bhave's observation comes against the backdrop of some recent comments of the Reserve Bank of India (RBI) expressing concerns over complex structured products such as synthetic securitisation and credit derivatives.
The RBI had said such products would be allowed only if found suitable after a study of the experience abroad and the risk management capabilities of the Indian system.
Addressing the students, Bhave said leveraged derivatives might help mint money as long as the going was good, but the downside could prove to be disastrous if the bet were to wrong.
''If you are big and if you have excessive leverage and if you come down, then you will bring the whole system down,'' he added.