Brokers to get more exposure to F&O

Move to get institutions to participate more

The exposure limit of brokers in the derivatives markets may be increased to accommodate greater participation by institutions.

The Securities & Exchange Board of India (Sebi) plans to increase the position limits for trading members (brokers) in the futures and options (F&O) market. An individual broker is currently not allowed to account for more than 7.5 per cent of the aggregate positions in any stock.

At the same time, the market regulator wants to bring institutional trades in the futures and options market within the purview of the member-wise position limits.

Sebi is considering a proposal mooted in the Varma committee report on deferral products. Confirming this, a Sebi official said, "The recommendation is under consideration."

The limit might be enhanced to encourage further institutional participation in the derivatives segment, Sebi sources said. Since institutional participation in the derivatives market is expected to be quite large, the markets regulator wants to include institutional trades within the increased position limits on trading members.

JR Varma, former Sebi director and chairman of the secondary markets committee on deferral products, had said in the report that there was absolutely no justification for excluding institutional trades from the purview of member-wise position limits. "This is unacceptable and highly pernicious," the report noted, on the issue of increasing the position limits in the F&O segment.

The committee further said India and Korea were perhaps the only exceptions to a global tendency for derivative markets to be dominated by institutional players.

"In India also, institutional participation is expected to grow in future with increased clarity in the regulatory regime," the committee noted.

The report recommended that the member-wise position be pegged at 20 per cent of the market-wide position limit in the stock, where the market-wide position limit is less than or equal to Rs 25 crore, and Rs 5 crore plus 7.5 per cent of the excess of the market wide position limit over Rs 25 crore where the market-wide position limit exceeds Rs 25 crore.

Currently, the aggregate positions of all players in the market put together in a single stock cannot exceed 10 per cent of the free float of that stock.

The aggregate positions cannot also exceed 30 times the average number of shares traded daily, during the previous calendar month, in the cash segment.