The Securities and Exchange Board of India (SEBI) on March 20 announced measures to make short-selling of stocks difficult in order to counter the market volatility tiggered by the coronavirus outbreak.
Taking note of the continued abnormally high volatility in the market, the markets regulator said it discussed with stock exchanges, clearing corporations and depositories appropriate measures that may be taken in the existing circumstances.
These measures will be effective from March 23, 2020, and said it will take further suitable action if needed.
"SEBI and stock exchanges will continuously monitor the market developments and review the position and take any further suitable actions as may be required," the markets regulator said.
As part of the measures, SEBI has proposed to raise margin for the non-F&O stocks to 40 percent in a phased manner. The proposed margins would only be applied in the cash market and may be applicable for a period of one month.
The market-wide position limit on F&O stocks may be cut to 50 percent, the regulator said in the release.
The regulator also said that the dynamic price bands for F&O stocks 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.
Experts feel the revised position limits in equity index derivatives (futures and options) is a timely move by the regulator.
"Curtailment of short positions in index derivatives to holding of stocks above Rs 500 crore will curtain speculative trading and help in reducing volatility," PK Bindlish, former Chief General Manager of SEBI, told Moneycontrol.
A Reserve Bank of India oficial told Moneycontrol that the central bank was concerned about the state of markets and there was pressure on SEBI to announce some measures to curb the volatility.
SEBI said it would revise Market Wide Position Limit (MWPL) for stocks in the F&O segment to 50 per cent of existing levels, subject to certain conditions.
It would be in place in case the average daily price high-low variation percentage is more than or equal to 15 per cent, or if the average MWPL utilisation percentage is at least 40 per cent or more. This would be calculated on the basis of last five trading days.
The revised MWPL would be only for introducing ban period on fresh positions and not for determining the enhanced eligibility criteria for derivatives stocks, it said.
Any increase in open positions would attract appropriate penal and/or disciplinary action of the stock exchanges/ clearing corporations.
Accordingly, stock exchanges/clearing corporations shall put in place an effective mechanism to monitor whether the market wide open interest for scrips meeting the aforesaid criteria exceeds 95 percent of the reduced market wide position limit as arrived at above.
Further, the stock exchanges/clearing corporations shall check on an intra-day basis (monitoring of Peak intraday OI or periodic intraday monitoring of OI) whether any member or client has exceeded his existing positions or has created a new position in the scrips in the new ban period.
In addition, the current penalty structure adopted by the stock exchanges/clearing corporations may be enhanced to 10-times of the minimum and 5-times of the maximum penalties specified by the stock exchanges/clearing corporations, to function as an effective deterrent in the current market context. Currently, the fine is Rs 5,000, which has been increased to Rs 50,000.
Currently, stocks in the F&O segment are subject to dynamic price bands.
As per SEBI's latest directive, those bands would 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.
"The 15 minute cooling-off period before flexing dynamic price bands is need of the hour. It will give time to participants to pause and analyse the factors behind the upheaval," Bindlish said.