SEBI crackdown on excessive volatility by imposing restrictions
Published On: Monday, March 23, 2020 | By: Team KnowMyStock
The SEBI has decided to crack down on excessive volatility by imposing several measures, which will impact traders as well as institutional investors. In particular, speculators in stock futures will have to cut down exposures as the market-wide position limit (MWPL) has been reduced to 50 percent in phases, from the existing 95 percent, for specific F&O stocks. Margins have also been hiked in the cash segment for both F&O and non F&O stocks, while institutions will have to restrict their F&O positions in the index derivatives segment to stay within a new criteria of cash and cash equivalents on the long side and value of stock holdings on the short side. This measure will also impact volume in specific F&O counters where offsetting will be required, we may actually see a situation where prices swing more on lower volumes, due to reduction of the liquidity.
The restrictions on index derivative trading: If an institution – Mutual Fund, foreign portfolio investors (FPI), proprietary trader – exceeds a short or long index position (option and future combined) of Rs 500 crore notional value, they will have either to produce stocks of equivalent value, or put up cash equivalents. In effect, this means that big institutions can hedge, but not speculate.This should restrict the wilder swings of the indices since it would remove a lot of firepower from the market. However, while the daily price fluctuations may be reduced in amplitude, the trend which has been net bearish is unlikely to change.
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