BSE relaxes exposure cap for B2 group stocks

In a major move, the Bombay Stock Exchange (BSE) has decided to withdraw the exposure limit in B2 group stocks from October 3, 2005. Followi...

In a major move, the Bombay Stock Exchange (BSE) has decided to withdraw the exposure limit in B2 group stocks from October 3, 2005. Following this decision, the exposure limit restriction will apply only to the Z group stocks, BSE said in a notice to its members.

Exposure limit is a sort of trade restriction and part of risk containment measures imposed by the exchange on its members (brokers) by which it can control the level of exposure taken by the member in that particular group of stocks. The exchange, as a risk management measure, has from time to time specified exposure limits, which have been made applicable to various scrip groups. BSE has implemented ‘Comprehensive Risk Management System’ (CRMS) for the cash segment from May 30, 2005.

Following the implementation of CRMS, the exchange has withdrawn application of special ad-hoc margin in B1, B2, S, T (trade-to-trade) and TS (trade to trade in BSE Indonext) group stocks and exposure limits in B1, S, T and TS group stocks.

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In continuation with this, BSE has now decided to withdraw exposure limits in B2 group stocks. However, the exposure limit in Z group will remain unchanged. Thus, prior permission of exchanges’ surveillance department by the member for Exposure in ’B2’ group will not be required from October 3, 2005.

As per the existing exposure limit in Z group stocks, a member is not allowed to have net outstanding position of more than Rs 25 lakh in a single stock, the non-compliance of this will result in the penalty of Rs 5,000 for every violation. A member can not have net outstanding position of more than Rs 100 lakh in all Z group stocks in a single rolling settlement. However, there are certain exemptions which do not fall under these restrictions.

BSE has also issued a statement saying that the movement of the BSE Smallcap index shouldn’t be, in any way, related to penny stocks as the index comprises of stocks from A, B1, B2, T and S groups. The index does not comprise of any stock from the Z group.

The exchange has further informed that there is no standard definition of penny stocks and it is generally understood to be of stocks that are quoted below Rs 10.

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