Sebi rules on short selling
India's market regulator on Friday halved position limits for certain stock futures, restricted short-selling of index derivatives and raised margin rates for some shares in a bid to curb "abnormally high" volatility amid the coronavirus pandemic
The measures by the Securities and Exchange Board of India (Sebi) come after markets around the globe have plummeted over the past week as emptying hotels and airports and closure of malls and offices threatened to bring the world's economies to a grinding halt.
In a circular after trading on Friday evening, the regulator said foreign portfolio investors, mutual funds, proprietary desks and large traders cannot take short positions in index derivatives above a notional value of ₹500 crore without owning the underlying stocks. This means if a large trader wants to create a big bet that the Nifty or the Bank Nifty would fall, he can do so only for hedging his share portfolio. Brokers said many large foreign and local investors active in derivatives would fall ..
The regulator has been under pressure from a section of market participants to ban traders from betting on market downsides, a practice popularly known as short-selling, following the 34% slump in the Nifty since February 19. Several countries in Europe and Asia have temporarily banned short-selling in various stocks
Sebi has asked these mutual funds, FPIs, proprietary desks and large traders to deposit cash or liquid instruments like government bonds or treasury bills for incremental bullish bets on index futures and options above ₹500 crore. This means if a large trader wants to take long positions in Nifty or other index futures with notional value above ₹500 crore, he will not get the benefits of margins. For instance, if the notional value of the trade is ₹700 crore, the trader will have to cough up ₹20 ..
To cut excessive speculation in stock futures and options, Sebi has cut the market wide positions limits in these contracts to 50% in a phased manner. A market-wide position limit is the maximum outstanding positions allowed across all stock derivative contracts. At present, the market-wide position limit is 95%. The new restriction is also applicable to those stocks which hit the market limit of 40% or more in the previous five days. When a stock derivative contract hits this limit, he usually ..
Brokers said the move will impact about 12% of the stock futures and options where volatility is high.
For the stocks under 50% MWPL, Sebi has also increased the minimum margin requirement in the cash market to 20% from March 23, 30% from March 26 and 40% from March 30.
For stocks that are not part of F&O with price band of 20% and witnessed an intraday price movement of more than 10% for three or more days in past one month, the minimum margin has been increased in a phased manner. The new minimum margin would be 30% March 23, 40% from March 26. The new margin rates will be applicable for a period of one month, said the Sebi circular.
Source : Et