Sebi curbs FII shorting in derivatives

The Securities and Exchange Board of India (Sebi) has made an attempt at curbing the arbitrage activities of foreign institutional investors (FIIs) in the derivatives segment and restrict them to hedging.

In a circular Sebi has directed that an FII's short position in index-based derivatives should not exceed the value of stock held by it in the underlying cash segment.

The Sebi circular said, "short positions in index derivatives (short futures, short calls and long puts) should not exceed (in notional value) of the FII's holding of stocks."

Further long positions of FIIs in index derivatives should not exceed the value of its exposure in cash, government securities and treasury

FIIs also have to report the extent of their holdings in stocks, cash, government securities, T-Bills and similar instruments to the custodians before the end of the day. The custodian will in turn should report the details to the exchanges.

Sebi has also said that the FII position limit in all index options contracts on a particular underlying index will be higher of Rs 250 crore or 15 per cent of the total open interest of the market in index options.

FII position limit in all index futures contracts on a particular underlying index shall be higher of Rs 250 crore or 15 per cent of the total open interest of the market in index futures.

These regulations are effective from September 1, 2004.