Putting in place a tighter framework to curb high market volatility, Sebi on Friday announced revising market wide position limit for stocks in the derivatives segment, flexing dynamic price bands and other measures for one month starting from March 23.
The slew of measures comes amidst sharp movement in stocks and continuing volatility in the wake of the coronavirus pandemic that has also adversely impacted economic activities.
The measures would be effective from March 23 and would be in place for one month.
Among other steps, revised positions limits would be applicable in equity index derivatives (F&O) and there would be flexing in dynamic price bands in the F&O (Futures & Options) segment only after a cooling period of 15 minutes after fulfilling certain criteria, Sebi said in a statement.
Taking note of the continued abnormally high volatility in the market, Sebi said it discussed with stock exchanges, clearing corporations and depositories appropriate measures that may be taken in the existing circumstances.
"Sebi and stock exchanges will continuously monitor the market developments and review the position and take any further suitable actions as may be required," the watchdog said.
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In the four-page statement, Sebi said it would revise Market Wide Position Limit (MWPL) for stocks in the F&O segment to 50 per cent of existing levels, subject to certain conditions.
It would be in place in case the average daily price high-low variation percentage is more than or equal to 15 per cent, or if the average MWPL utilisation percentage is at least 40 per cent or more. This would be calculated on the basis of last five trading days.
The revised MWPL would be only for introducing ban period on fresh positions and not for determining the enhanced eligibility criteria for derivatives stocks, Sebi said.
End-of-day positions, as on the date of issuance of the circulars by the stock exchanges/clearing corporations in this regard, would not be impacted.
In the event MWPL utilisation in a security crosses 95 per cent, then derivative contracts enter into a ban period. This means that trading members can trade in derivative contracts only to decrease their positions.
"Any increase in open positions would attract appropriate penal and/or disciplinary action of the stock exchanges / clearing corporations," the statement said.
Further, Sebi said stock exchanges and clearing corporations have to put in place an effective mechanism to monitor whether the market wide open interest for scrips meeting the criteria exceeds 95 per cent of the reduced MWPL.
Stock exchanges and clearing corporations have been asked to check on intra-day basis whether any member or client has exceeded their existing positions or have created a new position in the scrips in the new ban period.
"... the current penalty structure adopted by the stock exchanges / clearing corporations may be enhanced to 10 times of the minimum and 5 times of the maximum penalties specified by the stock exchanges / clearing corporations, to function as an effective deterrent in the current market context," Sebi said.
An increase in margin would be allowed for stocks meeting certain criteria. The margin rate in cash market would be raised to a minimum of 40 per cent in a phased manner.
The minimum 20 per cent level would be from March 23, 30 per cent from March 26 and 40 per cent from March 30.
The proposed margins would be applicable only in cash market and derivatives contracts on the stocks concerned would continue to be charged margins as per the extant framework.
Further, there would be an increase in margin for non-F&O stocks in cash market.
Mutual funds, FPIs, trading members (proprietary) and clients can have exposure in equity index derivatives on the basis of certain conditions.
Short positions in index derivatives should not exceed, in terms of notional value, these entities' holding of stocks.
When it comes to long positions in index derivatives, the same should not exceed their holding of cash, government securities, T-Bills and similar instruments, as per the statement.
Also, there would be additional position limits for these entities. This would be Rs 500 crore each for equity index futures contracts and equity index options contracts.
In case the limits are exceeded, then an additional deposit has to be paid by the entity concerned.
"The existing positions as on the date of issuance of the circulars by the stock exchanges/ clearing corporations would not be impacted... however, if a fresh position is taken, then the entire positions (including the grandfathered positions) shall be subject to limits," Sebi noted.
This framework would be in place for one-month starting from March 23 for institutions and trading members (proprietary). For others, it would be applicable from March 27.
Currently, stocks in the F&O segment are subject to dynamic price bands.
As per the latest directive, those bands would be flexed only after a cooling-off period of 15 minutes from the time of meeting the existing criteria specified by stock exchanges for flexing, the statement said.
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