In a move aimed at reducing risks from defaults in the derivative segment, market regulator SEBI has introduced cross margin facility for institutional traders, under which margin requirement for a futures contract will be reduced if the buyer holds stocks in the spot market.
"Cross margin facility will be available initially for institutional trades", SEBI said in a circular.
Cross margining refers to a position where the margin requirements in the derivatives market are set-off against the stocks held in the spot market.
The cross margin facility, it added, will also be available to positions in cash market having corresponding off-setting positions in the stock futures market.
The initiative is aimed at improving the efficiency of the use of the margin capital by market participants, it said.
As an initial step towards cross margining across cash and derivatives markets, it said, "Margins shall be levied on cash market positions which have off-setting stock futures positions in the derivatives market."
For positions in the cash market which have corresponding offsetting positions in the stock futures, it said, VaR (Value added Risk) margin will not be levied on the cash market position to the extent of the off-setting stock futures market position.
SEBI further said that Extreme Loss Margin and Market to Market Margin will continue to be levied on the entire cash market position.
In addition, SEBI said that near month stock futures positions will not be considered for cross margin benefit three days prior to expiry of the contract.
The regulator has also asked the stock exchanges to put in place the adequate systems and issue the necessary guidelines for implementing the cross margin facility by amending their bye-laws, rules and regulations.
While issuing the circular, the regulator has also clarified that there would be no change in the margins on the futures and options (F&O) positions.
The guidelines, the regulator said, were being issued to protect the interest of investors and promote the development of the securities market.
Offline
Moneycontrol 
see more
