NSE hikes F&O margin by up to 300% for stocks with rising open interest

Our Bureau Mumbai | Updated on April 25, 2019 Published on April 25, 2019

The NSE has increased margin in its futures and options (F&O) segment for stocks, mainly depending on their open interest (OI), by up to 300 per cent. This could hurt traders as they may require extra money for trading in stocks, experts say.

A stock in the F&O segment where the OI has reached 90 per cent, will attract nearly 300 per cent additional margin over and above its normal applicable base. For stocks where the OI is less than 70 per cent, the margin will be as per normal applicable limits but will keep increasing with further rise in OI, the exchange has said.

Open interest is the number of contracts outstanding in the F&O segment at the end of the day. Every stock has a certain amount of OI allowed, which is decided as per its floating stock or total number of equity stocks available in the market. When OI in a particular scrip reaches above 90 per cent it enters a ban period wherein trading in F&O can be done only to unwind positions.

Getting a particular stock under ban to see that trading is curbed by the exchange and hence volatility dies down has been a favourite tactic of market operators to manage the stock price, sources say. It is a menace when a stock enters the F&O ban period repeatedly and players cannot trade actively in it. Such operator activity is one of the key reasons for the exchange to have increased the margin limits and linked it to increase in OI to curb dubious operator activity. But it would also severely hurt traders as those wanting to trade in the counter will require more money and hence, face higher risk. For the small investors, the F&O segment has gone out of reach as the regulator had increased the lot size and kept a minimum threshold of ₹5 lakh.

Also, the NSE recently removed more than 30 stocks from its F&O segment as they did not meet the criteria, which will further cut down F&O trading, experts say.

Published on April 25, 2019

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