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Thursday, October 22, 2020

SEBI hikes margins to check short-selling, market volatility

The Securities and Exchange Board of India (Sebi) said that margin rate in the cash market will be increased to a minimum 40 per cent in a phased manner.

By: ENS Economic Bureau | Mumbai | Updated: March 21, 2020 5:12:46 am
Sebi, SEBI hikes margins to check short-selling, SEBI market volatility, SEBI norms The proposed margins would only be applied in cash market. Derivatives contracts on these stocks will continue to be charged margins as per the extant framework.

Capital markets regulator Sebi on Friday announced an increase in margins in the cash market and position limit in the futures & options (F&O) segment, in a bid to ease market volatility and make short-selling of shares tougher.

The Securities and Exchange Board of India (Sebi) said that margin rate in the cash market will be increased to a minimum 40 per cent in a phased manner.

Accordingly, it will be raised to a minimum of 20 per cent from March 23, 30 per cent from March 26 and 40 per cent from March 30.

The proposed margins would only be applied in cash market. Derivatives contracts on these stocks will continue to be charged margins as per the extant framework.

“The proposed margins rate may be applicable for a period of one month,” Sebi said.

During the week, the 30-share Sensex plummeted 4,187.52 points, or 12.27 per cent, while the broader Nifty sank 1,209.75 points, or 12.15 per cent.

Indian markets had witnessed huge swings on a daily basis in the last two weeks, in line with the global sell-off triggered by the coronavirus pandemic. In the case of non-F&O stocks in the cash market with price band of 20 per cent and witnessing an intra-day (high-low) price movement of more than 10 per cent for six or more days in last one month, minimum margin rate will be increased in a phased manner to 40 per by cent March 26.

For stocks in F&O segment, market wide position limit (MWPL) will be revised to 50 per cent of the existing levels if the average daily price high-low variation percentage (during last five trading days) is more than or equal to 15 per cent, or average MWPL utilisation percentage (during last five trading days) is more than or equal to 40 per cent.

If MWPL utilisation in a security crosses 95 per cent, derivative contracts enter into a ban period wherein all clients and trading members are required to trade in the derivative contracts of said scrips only to decrease their positions through offsetting positions.

Accordingly, stock exchanges and clearing corporations should put in place effective mechanism to monitor whether the market-wide open interest for scrips meeting the criteria exceeds 95 per cent of the reduced market wide position limit.

Further, the stock exchanges and clearing corporations should check on an intra-day basis whether any member or client has exceeded his existing positions or has created a new position in the scrips in the new ban period. The new framework will be applicable from March 23 for one month.

“In the recent past, world over, the stock markets have been quite volatile owing to concerns relating to COVID-19 pandemic and the resultant fear of economic slowdown. The movement in the Indian stock market has been broadly in tandem with the other global markets,” the markets regulator said.

“On account of our existing robust risk management framework, despite significant movements in the market, there has not been any disruption in the settlement cycles of the stock exchanges and clearing corporations,” Sebi added.

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