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SEBI withdraws few F&O Trading Rules Introduced in March 2020

Securities and Exchange Board of India
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Securities and Exchange Board of India

Highlights

Securities and Exchange Board of India (SEBI) has withdrawn certain regulatory measures introduced in March 2020 to contain the market volatility amid COVID-19 pandemic.

Securities and Exchange Board of India (SEBI) has withdrawn certain regulatory measures introduced in March 2020 to contain the market volatility amid COVID-19 pandemic. It had withdrawn a proposal to increase the margin requirement for non-futures and options (F&O) stocks in the cash market.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, 2020, had proposed to raise the margin requirement for non-F&O stocks to 40 per cent in a phased manner. It had said, "The proposed margins would only be applied in the cash market and may be applicable for a period of one month."

SEBI in its circular issued on November 25, 2020, said, "This shall stand withdrawn w.e.f. close of business on November 26, 2020."

SEBI has said, that based on the market feedback, it has decided to withdraw its measures for stocks in derivatives segment (future and options (F&O) stocks) and increase in merging for non-F&O stocks in cash market from November 26, 2020. It added the two other measures for index derivatives and flexing of dynamic price bands for F&O stock would continue to remain in force till further directions.

The measures, first introduced in March, included limits on positions that can be taken up by investors in the F&O segment.

The regulatory measures that have been reviewed and stand revised includes

Stocks in derivatives segment (F&O stocks): The regulatory measures mentioned at S. No. 1. (i) and 1. (ii) of Annexure A to SEBI Press Release dated March 20, 2020, shall stand withdrawn w.e.f. close of business on November 26, 2020, subject to the continuation of the following till further directions:

With regard to S. No. 1. (i), in the event MWPL utilization in security crosses 95 per cent, 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.

Accordingly, stock exchanges/ clearing corporations shall put in place effective mechanism to monitor whether the market wide open interest for scrips meeting the aforesaid criteria exceeds 95% 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.

Increase in the margin for Non-F&O Stocks in Cash Market: This shall stand withdrawn with effect from close of business on November 26, 2020. In its March 20, 2020, notification, SEBI increased the margin for stocks in the cash market to a minimum 40 per cent.

Index Derivatives: The regulatory measures mentioned at S. No. 3 of Annexure A to SEBI Press Release dated March 20, 2020, shall continue to remain in force till further directions, subject to revised S. No. 3. (iii) which shall now read as under:

If any of the aforesaid entities exceed the respective limits prescribed at 3(i) and 3(ii) above, an additional deposit shall be payable by the entity equivalent to the amount of margin chargeable on excess position beyond the limits prescribed at 3(i) and 3(ii) above and the same shall be retained by stock exchanges/ clearing corporations for a period of one month.

Flexing of dynamic price bands for F&O stocks: The regulatory measures mentioned at S. No. 4 of Annexure A to SEBI Press Release dated March 20, 2020, shall continue to remain in force till further directions.

March 20 notification

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