The Hindu Business Line : NSE tightens derivatives norms

Two days after hiking the exposure margins in derivatives, the National Stock Exchange (NSE) on Wednesday further tightened the regulations in the derivative segment by asking members to ensure that the client level positions on a gross level are not breached on individual stocks.

In a circular, the NSE said the gross open position across all derivative contracts on a particular underlying of a client should not exceed one per cent of the free float market capitalisation (in terms of number of shares).

Also, it should not exceed five per cent of the open interest in the derivative on a particular underlying stock (in terms of number of contracts). "This position limit would be applicable on the combined position in all derivative contracts on an underlying stock at an exchange," the circular said.

The new limits will come into effect from May 9.

Extra burden

Dealers said earlier the ceiling was not on a gross basis. Simply put, the regulations stipulated that clients do not breach the ceiling with a trading member while he/she could go ahead and further build up positions with another member. "It will hurt the sentiments of the market. This will put the extra burden on the members," said Mr Pankaj Namdharani, Head (Equities) of SPA Securities.

Stiff penalties

In the event of violation, the members are asked to ensure that the client does not take fresh positions and if required, reduce the position of such clients within permissible limits.

The circular also imposed stiff penalties on clearing members for every day of violation. This will be one per cent of the value of the quantity in violation (i.e., in excess quantity over the allowed quantity, valued at the closing price of the underlying stock) per client or Rs 1 lakh per client, whichever is lower, subject to a minimum penalty of Rs 5,000 per violation per client.

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