With an aim to provide greater liquidity to the market, regulator Sebi today barred commodity exchanges from levying special margins in case of spread trades.
"In case of spread trades, special margin shall not be levied," the Securities and Exchange Board of India (Sebi) said in a circular.
The spread trade refers to simultaneous purchase of one security and sale of a related security, called legs, as a unit. These trades are usually executed with options or futures contracts as the legs, but other securities are sometimes used.
Spread trading is allowed where the underlying commodity is the same and contract calendar is different or contract variants are different.
Sebi had started regulating commodity markets after the merger of Forward Markets Commission (FMC) with the markets regulator in September last year.
This circular is being issued to consolidate and update norms prescribed for commodity bourses by erstwhile FMC.
As per Finance Act, 2015 all rules, directions, guidelines, instructions and circulars made by FMC or the central government applicable to recognised associations under the Forward Contracts (Regulation) Act, 1952 would remain in force for one year from the date of repealing FCRA or till such time as notified by Sebi, whichever is earlier.
FCRA was repealed on September 29, 2015.
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