In anticipation of introduction of trading in stock futures, Securities and Exchange Board of India (Sebi) today introduced stringency in position limits at client level and trading member levels.
Due to apprehensions of market manipulations the position limits were tightened further today and the limits will now apply on aggregate positions on stock futures and options together. "The limits will be applied on the aggregate positions in these two segments," chairman of the Advisory Committee on Derivatives, J R Varma said. These limits will be monitored at the exchange level, broker level and client level.
At present, trading members have to maintain positions limits at Rs 100 crore - this would stand reduced to Rs 50 crore in case of stock futures. Now position limits will also be imposed on clients - who trade through a number of brokers - and this has been fixed at five per cent of the market-wide open position in the derivatives market.
"No client should have more than 5 per cent of the open market position," Varma clarified. Initially until the market picked up this cap would be restricted to one per cent of the market capitalisation, he said.
All the steps taken on the position limits have been done with the intention of curbing market manipulation, Sebi chairman D R Mehta said. The group also discussed the participation of foreign institutional investors and mutual funds in derivatives trading. Currently FIIs are permitted to trade only in index futures and that too their exposure is limited only to the extent of their exposure in the cash market. Reserve Bank is expected to revise these exposure limits.
Trading in individual stock futures is expected to be introduced by the two major exchanges BSE and NSE in another three to four months. In a meeting with the capital market regulator BSE and NSE told SEBI today that they would be ready to introduce cash settled futures contracts in a month's time but delivery settled stock futures would take three to four months.
Sebi, at its last board meeting had approved introduction of stock futures in 31 stocks in which options are permitted. The exchanges would take two weeks to ready their proposals and forward it to Sebi for its approval.
