The National Stock Exchange (NSE) is set to allow foreign portfolio investors to trade in the futures and options segment within 10 days of receiving permission from the Securities and Exchange Board of India.
Foreign institutional investors (FIIs) will now be able to leverage positions in derivatives on the NSE subject to the guidelines issued by the exchange and the regulator.
According to the guidelines, FIIs shall be a allowed position limit of 15 per cent of open interest in all futures and options contracts on a particular underlying index on the exchange or Rs 100 crore, whichever is higher, in index related derivative products.
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However, for a particular underlying security, the position limit shall be 7.5 per cent of open interest in all futures and options contracts on a particular underlying security on the exchange or Rs 50 crore, whichever is higher.
In case of sub-accounts of FIIs, disclosure will be required for any person or persons acting in concert, who together own 15 per cent or more of the open interest of all futures and options contracts on a particular underlying index on the exchange.
The gross open position of a sub-account of an FII across all futures and options contracts on a particular underlying security should not exceed 1 per cent of the free float market capitalisation (in terms of number of shares) or 5 per cent of the open interest in the derivative contracts on a particular underlying stock (in terms of number of contracts).
These position limits shall be applicable on the combined position in all futures and options contracts on an underlying security on the exchange. The position limits shall be computed on a gross basis at the level of a FII and on a net basis at the level of individual sub-accounts and proprietary positions.
The open position for all derivative contracts would be valued as the open interest multiplied with the closing price of the respective underlying in the cash market.
It would be mandatory for clearing members of the FII to submit the details of all the trades confirmed by the FII to the clearing corporation by the end of each trading day. The clearing corporation will monitor the open positions of the FII/ sub-account of the FII for each underlying security and index on which futures and option contracts are traded on the exchange against the position limits specified at the level of FII/ sub-accounts of FII respectively, at the end of each trading day.
In the event of an FII breaching the position limits on any underlying security, the clearing corporation will advise the exchange to withdraw the facility granted to such FII to take any fresh positions in any derivative contracts. and such FII will be required to reduce their open position in such underlying. The facility withdrawn may be reinstated upon due compliance of the position limits.
It shall also be obligatory on FIIs to report any breach of position limits by them/ their sub-account/s, to the clearing corporation and ensure that such sub-account/s does not take any fresh positions in any derivative contracts in such underlying. The sub-account of FII shall be required to reduce open position in such underlying, in accordance with the mechanism specified by the clearing corporation. Only upon due compliance of the position limits, the sub-accounts may permitted to take further positions, NSE said in a circular to its members.