SEBI, as has always been, taken proactive measures to protect the interest of Investors and Traders in an unseen volatile market as this. Read this circular for more details. National Stock Exchange had subsequently come with another circular to throw light on SEBI’s circular to clear doubts and ensure right interpretation of the measures introduced.
Lets now see the measures taken by SEBI. To summarise, 3 changes as given below are brought in by SEBI
- Higher Margins for
- Stocks with F&O Contracts
- Stocks without F&O Contracts
2.Revision of Market Wide Position Limit for Stocks in F&O and
3. Revised Position Limits for Index Futures and Options
Higher Margins for stocks with F&O Contracts
The minimum margin requirement is made 40% for the stocks which had
a) An average daily price movement or range (which is nothing but the difference between its high and low for the day) of more than 15% for the last 5 trading sessions or
b) The market wide position limit or open interest of the F&O contracts of the stocks was more than 40% in the last 5 days
Higher Margin for Stocks without F&O Contracts
The minimum margin is fixed at 40% for the stocks where the Intra-day price range is more than 10% for 3 days in the last one month.
To discourage traders to take too much of a risk and to protect their interest, Tradeplus has done the following changes :
- NRML margin requirement is increased by 50%. If the SPAN requirement of exchange for a given contract is let’s say Rs.50000/- , our margin requirement will be Rs.75000/- with effect from 23/3/2020
- MIS requirement would be 100% SPAN/VAR when a gap opening of market is expected and will be restored to 50% of SPAN/VAR during the course of the day based on the market volatility with effect from 23/3/2020
- Derivative Contracts of Equity Stock Futures with current month’s expiry will be put on SQ off mode with effect from 24/3/2020. Meaning, you can only SQ off your existing positions, if any in Mar’20 expiry and not create fresh positions with effect from 24/3/2020. However this will not be applicable for Equity Index futures , Currency and Commodity Derivatives.
These margin changes are temporary and it will be changed once the market stabilizes.
Revision of Market Wide Position Limit (MPWL) for Stocks in F&O
SEBI has reduced the Market Wide Position limit by 50% to limit speculation on stocks where the daily price movement is more than 15% in the last 5 trading sessions or if the MWPL of the stocks was more than 40% for last five days.
Earlier stocks where the MWPL is more than 95% enter into ban period. In such contracts, one can only trade to reduce his/her existing positions and cannot take fresh position which will eventually increase the Open Interest (OI) of the stock. With this new rule, many more will enter into the ban period. Hence, take note of this before you place an order.
Another important change is, if a stock with f&o contract, hits an upper of lower circuit in equity cash, its price band in equity cash will be immediately relaxed. From now on, there will be a cooling period of 15 mins before it is released even in the cash segment.
Revised Position Limits for Index Futures and Options
Big traders tend to take huge positions in Index. They now need to curtail their position in line with the new requirements. SEBI has set position limits in Index Futures and Index options. If a big trader exceeds these limits, he or she has to bring in an additional margin of 100% of the notional (contract) value of the contract in cash to go long or should have equivalent value (notional value) of stocks to go short.
The limit on positions are set as
- 500 crores of contract value in Futures, This is approximately 8590 lot of Nifty at 7760 and
- another 500 crores in Options
Note that this position limit is calculated on Net basis. This implies that if you are long on Nifty Call and Nifty Put then your actual net position is 0. The second page of NSE circular explains this clearly. This apparently is not for retail traders and they need not worry on this.
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Hopefully we have clarified all you queries with regard to these regulatory changes.
Stay safe at home and trade online.