The Securities and Exchange Board of India has raised the margins in the cash segment while tightening norms for position limits in derivatives, as volatility continues to rise in the stock market.
The aim was to ensure effective risk management and market integrity, a statement said. The marketwide position limit in certain stocks in derivatives has been revised to 50% and the penalty on an entity found to exceed permissible limits has been enhanced to 10 times of the current minimum and five times of the maximum penalty structure.
Further, for stocks with a price band of 20% and witnessing an intra day (high-low) price movement of more than 10% for three or more days in the last one month, the minimum margin rate would be increased to 40% in a phased manner.
Meanwhile, foreign portfolio investors (FPIs) and mutual funds among others will be allowed to take short positions in index derivatives only to the extent of the notional value of their holding in the underlying stocks.
“Unlike most markets where short-selling was banned to curb speculation as a fallout of COVID-19, SEBI has prudently restricted market-wide position through this initiative,” said Ajay Kejriwal, president, Choice Broking.
“With increase in margins for cash segments in selective stocks, it will also reduce the volumes in the market and ensure less leverage and volatility for an investor worthy market which in recent times had seen India VIX at the highest level since the 2008,” he added.
