100-Word Take | NSE compels traders to wear crash guards by increasing margin ahead of budget

Shishir Asthana

In order to curb volatility ahead of the budget session of Parliament, NSE has decided to increase margins in the derivatives segment by as much as 40 percent. This is a surprise. India VIX, a key measure of volatility, is still trading close to its average level of 16. So, NSE’s move can only be seen as pre-empting any increase in volatility.

In any case, the decision to impose extra margins will in itself lead to short-term volatility. As the date of implementation – January 21, 2019 -  approaches, the market could turn volatile as traders rush to square off their positions to avoid paying the incremental margin. But that also means that post-budget volatility could well be lower compared to earlier years as positions would be light.