SEBI curbs derivatives shorts
24 March 2020 India
Image: Shutterstock
The Securities and Exchange Board of India (SEBI) has laid down more stringent rules on taking short positions on index derivatives as part of a raft of rule changes aimed at controlling volatility in its equities markets.
The authority says India’s markets have suffered alongside most other global markets as a result of the coronavirus pandemic and, as such, new measures were needed to temper investor concerns.
As of 23 March, a new rules framework will be in place for one month, which includes revised position limits in equity index derivatives and a major hike in margin requirements for cash markets.
SEBI now requires that short positions in index derivatives, including short futures, short calls and long puts, shall not exceed (in notional value) of the mutual funds’; foreign portfolio investment; trading members’; or clients’ holding of stocks.
If these limits are exceeded, SEBI states that an additional deposit must be paid worth double the amount of margin chargeable on excess position beyond the limits and will be held for three months.
The Indian stock exchange has now joined France, Italy, Belgium and Spain in taking temporary measures to curb bets against scores of falling shares, whereas Philippines have taken more drastic measures by closing its financial markets completely early last week.
In recent weeks, many stocks in the futures and options segment have seen fluctuations of up to 40 percent each day, the volatility index has also surged to its highest since the financial crisis in 2008.
According to SEBI, these measures have been taken in a bid to calm the markets.
SEBI and Indian stock exchanges will continuously monitor the market developments and review the position and take any further suitable actions as may be required.
The authority says India’s markets have suffered alongside most other global markets as a result of the coronavirus pandemic and, as such, new measures were needed to temper investor concerns.
As of 23 March, a new rules framework will be in place for one month, which includes revised position limits in equity index derivatives and a major hike in margin requirements for cash markets.
SEBI now requires that short positions in index derivatives, including short futures, short calls and long puts, shall not exceed (in notional value) of the mutual funds’; foreign portfolio investment; trading members’; or clients’ holding of stocks.
If these limits are exceeded, SEBI states that an additional deposit must be paid worth double the amount of margin chargeable on excess position beyond the limits and will be held for three months.
The Indian stock exchange has now joined France, Italy, Belgium and Spain in taking temporary measures to curb bets against scores of falling shares, whereas Philippines have taken more drastic measures by closing its financial markets completely early last week.
In recent weeks, many stocks in the futures and options segment have seen fluctuations of up to 40 percent each day, the volatility index has also surged to its highest since the financial crisis in 2008.
According to SEBI, these measures have been taken in a bid to calm the markets.
SEBI and Indian stock exchanges will continuously monitor the market developments and review the position and take any further suitable actions as may be required.
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