NSE trims list of securities eligible as collateral by over 1,000, making F&O trading harder

NSE Clearing will remove securities with low trading activity or high impact cost from those acceptable as collateral.

The National Stock Exchange (NSE) has tightened the eligibility criteria for over a thousand securities to be accepted as collateral, usually pledged by clients for margin requirement for intraday or derivatives (Futures & Options) trading.

The changes will come into effect from 1 August 2024 in a graded manner.

NSE Clearing Limited will disallow securities with low trading activity or high impact cost, effectively eliminating 1,010 securities from the acceptable list of about 1,730 eligible ones to be pledged as collateral. This would leave fewer securities for F&O and intraday traders to pledge.

Interestingly, as many as 25 of the securities being removed have a market capitalisation of more than Rs 20,000 crore each. Among the high market capitalisation stocks that will be hit by this circular are Adani Power, Yes Bank, Suzlon, Paytm (One 97 Communications), HUDCO, Bharat Dynamics, Go Digit General Insurance, and many more.

NSE said in a circular on July 10 that its clearing arm will approve and accept as collateral only those equity securities that have been traded at least 99 percent of the days over the previous six months and have an impact cost of up to 0.1 percent for an order value of Rs 1 lakh. “Equity securities not fulfilling the above criteria shall not be accepted from 1 August 2024,” said the circular.

The stock exchange has issued a tentative list of securities which would fail the criteria, based on the data till the issue of circular. It will publish the final list of acceptable equity stocks as part of its monthly circular of acceptable securities.

The total size of the margin trading facility book is at about Rs 73,500 crore, per the latest data, said Ashish Rathi, Wholetime Director, HDFC Securities. He told CNBC TV18 in a conversation that it still remains to be seen how much will the impact of this measure be, as it will depend on the brokers continuing to accept these securities or not.

However, to provide a transitional support to the clearing members for replacing the unapproved securities, the NSE will progressively raise the haircut, as below:

> From 1 August 2024: 40 percent or VAR (value-at-risk), whichever is higher

> From 1 September: 60 percent or VAR, whichever is higher

> From 1 October: 80 percent or VAR, whichever is higher

> From 1 November: 100 percent

“Clearing members are requested to ensure that the un-approved securities are replaced by approved collaterals at the earliest,” said the NSE circular.

For mutual fund schemes part of this list, the haircut will be changed to 5 percent for growth plans of overnight mutual funds, liquid funds, or government securities mutual funds. For other mutual funds, the haircut will be at VaR (value-at-risk) margin based on 6 standard deviations, subject to a minimum of 9 percent. This is a very conservative measure, indicating that the calculated risk takes into account very extreme market movements.

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