The Securities and Exchange Board of India has withdrawn a proposal to increase the margin requirement for non-futures and options (F&O) stocks in the cash market.
The market regulator on March 20 this year had proposed to raise the margin requirement for 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," it had said.
"This shall stand withdrawn w.e.f. close of business on November 26, 2020," SEBI said, in its circular on November 25.
SEBI, in March this year, had introduced these regulatory measures in view of the ongoing market volatility and to ensure orderly trading and settlement, effective risk management, price discovery and maintenance of market integrity.
The regulator has also decided to withdraw the measures with respect to stocks in the derivatives segment (F&O stocks) from November 27.
"In the event, MWPL (marketwide position limit utilisation) in a security crosses 95 percent, 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. Any increase in open positions would attract appropriate penal and/or disciplinary action of the stock exchanges / clearing corporations," the regulator said.
Accordingly, SEBI said stock exchanges and clearing corporations should 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.
Further, the stock exchanges and clearing corporations shall check on an intra-day basis (monitoring of peak intraday open interest or periodic intraday monitoring of open interest) whether any member or client has exceeded his existing positions or has created a new position in the scrips in the new ban period, it added.
In case of regulatory measures for flexing of dynamic price bands for F&O stocks, SEBI said the same will continue to remain in force till further directions.
On March 20, SEBI had said the dynamic price bands for F&O stocks 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.
However, some regulatory measures implemented by the regulator with respect to Index Derivatives will continue to remain in force till further directions.
"If any of the entities (mutual funds, foreign institutions and trading members (proprietary or on behalf of clients)) exceed the Rs 500 crore limit (in case of short as well as long side positions), an additional deposit shall be payable by the entity equivalent to the amount of margin chargeable on excess position beyond the limits and the same shall be retained by stock exchanges / clearing corporations for a period of one month," the regulator stated.
It means there are no restrictions for holding the short positions up to Rs 500 crore in index derivatives, but in case any of entities mentioned above exceeded the limit of Rs 500 crore, whatever additional amount of shares they hold currently, that much amount of short positions are only allowed to take in index derivatives.
In case of long side trade in index derivatives, there are no restrictions for holding positions up to Rs 500 crore. But once the same limit exceeds, mutual funds, foreign institutions and trading members are allowed to take positions in index derivatives only to the extent of their current holdings of cash, government securities, treasury bills and similar instruments.