Technical Analysis

SEBI measures to curb market volatility

BL Research Bureau | Updated on March 22, 2020 Published on March 22, 2020

Edited excerpts from a circular

The following measures will take effect from the beginning of trading on March 23 and will be in force or a period of one month.

The position would be reviewed thereafter and appropriate view taken thereupon.

Market-wide positions

Market-wide position limit (MWPL) has been halved in stocks in the F&O segment where volatility is high, there has been 15 per cent intra-day volatility over the last five sessions, or if the trading positions are high in any particular stock (determined by the utilisation of MWPL being more than or equal to 40 per cent over the last five trading sessions).

If MWPL utilisation in a security crosses 95 per cent, derivative contracts enter into a ban period, wherein, all clients/ trading members are required to trade in the derivative contracts of said scrips only to decrease their positions through offsetting positions.

Penalty

In addition, the current penalty structure adopted by the stock exchanges/clearing corporations may be enhanced to 10 times of the minimum and five times of the maximum penalties specified by the stock exchanges /clearing corporations, to function as an effective deterrent in the current market context.

Increased margins

For stocks in the derivative segment that are highly volatile as identified above, the margin rate in cash market shall be increased to a minimum of 40 per cent in a phased manner as follows:

a) Minimum 20 per cent to be effective from March 23

b) Minimum 30 per cent to be effective from March 26

c) Minimum 40 per cent to be effective from March 30

These margins would only be applied in cash market. Derivatives contracts on these stocks will continue to be charged margins as per existing rules. The higher margins rate may be applicable for a period of one month.

For non F&O stocks in cash market witnessing an intra-day (high-low) price movement of more than 10 per cent for three or more days in the past one month, the minimum margin rate shall be increased in a phased manner as follows:

a) 30 per cent to be effective from March 23

b) 40 per cent to be effective from March 26

c) 40 per cent or Max intra-day high-low variation (during last one month), whichever is higher, to be effective from March 30

Index derivatives

(i) Mutual funds/FPIs/Trading members (Proprietary)/Clients may take exposure in equity index derivatives subject to the following limits:

a. Short positions in index derivatives (short futures, short calls and long puts) shall not exceed (in notional value) the MFs’/ FPIs’/trading members’ (proprietary)/clients’ holding of stocks.

b. Long positions in index derivatives (long futures, long calls and short puts) shall not exceed (in notional value) the MFs’/FPIs’ holding of cash, government securities, T-Bills and similar instruments.

(ii) Further additional position limits mentioned hereunder shall be available to trading members (proprietary)/ FPIs/ MFs/clients: Equity index futures contracts: ₹500 crore;

Equity index options contracts: ₹500 crore.

The existing positions as on the date of issuance of the circulars by the stock exchanges/ clearing corporations would not be impacted (ie, the positions shall be permitted to be held till expiry or close-out, whichever is earlier). However, if a fresh position is taken, the entire positions (including the grandfathered positions) shall be subject to limits mentioned above.

The above framework may be applicable for a period of one month, with effect from March 23, for institutions and trading members (proprietary). For others, the applicability will begin on March 27.

In addition to the existing requirements, the dynamic price bands may 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.

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Published on March 22, 2020
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