Sebi relaxes circuit filter limits

quot;We initially toyed with the idea of doing away with circuit filters altogether, but the stock exchanges were not comfortable with it,quot; Sebi chairman D R Mehta told reporters after the meeting of the risk management committee.

So it was decided to offer a further relaxation of four per cent in the circuit breaker limit 8211; the system will function in the same way as it is now with a half hour cooling period once the initial 8 per cent limit is reached, and then scrip prices can go up or down by another 8 per cent. These are applicable to the 200 scrips already identified under normal settlement and all the 163 scrips under compulsory rolling settlement. The new system would take effect from July 3.

quot;It was decided to introduce this for sometime,quot; senior executive director L K Singhvi said, quot;and see how it worked.quot; Mehta explained that relaxation was felt necessary especially for the scrips under rolling mode, where traders are more likely to feel the effects of being trapped by the circuit limits, as positions have to be squared up the same day and delivery has to be made.

The threshold limit for attracting volatility margins has been increased from 60 per cent to 80 per cent, while the number of slabs has been brought down from six to three. Under the new dispensation scrips with volatilities between 80 to 100 per cent will pay 10 per cent margin, between 100 to 150 per cent 15 per cent margins and volatilities beyond 150 per cent will attract a margin of 25 per cent. Under the existing structure the volatility margins range from 5 per cent to 30 per cent.

Elaborating on this, Singhvi said that while simplifying the structure, the number of scrips on which such margins are imposed would stand reduced from the current 200 to 100, that is roughly halved. The revamped structure would be applicable for the account period starting after June 30.

Sebi has also decided to withdraw the 5 per cent additional margin on the sale side, which was imposed on April 26, this year.

In a bid to promote delivery-based trades, the regulator has also decided to do away with payment of margins in cash for trades which are marked for delivery. At present 30 per cent of the margins have to be paid in cash in respect of all transactions. With this decision, investors have the option to fully secure their margins through bank guarantees.

Mehta said that along with promoting delivery-based transactions it would also reduce transaction costs. These trades cannot be squared up during the settlement period and must result in delivery. This measure would be implemented as soon as the stock exchanges work out the modalities of implementing it.

With the rationalisation made today, only three margins 8211; initial margin, mark to market margin and a revamped volatility margin 8211; would be imposed on the market. For scrips under rolling mode even the volatility margins are not applicable. So far there were five categories of margins to be paid.

The rather thorny issue of margins on institutional trades was not discussed at today8217;s meeting. Mehta said that there was no time for it, adding that it being a sensitive issue would also require more time to deliberate.