On October 22, 2020, the Securities and Exchange Board of India issued a press release (56/2020) announcing that upon reviewing the COVID-19 pandemic-related situation, it has been decided that the regulatory measures that were introduced by the SEBI via an earlier press release dated March 20, 2020, were to continue to be in force till November 26, 2020.
Here is a summary of the regulatory measures that the SEBI introduced in March 2020.
1. Stocks in the derivatives segment (F&O stocks)
In the context of stocks in the derivatives segment, there was a revision of the Market Wide Position Limit (MWPL) and an increase in the margin for stocks that met a set of predefined criteria.
- For the following stocks, the MWPL was allowed to be raised to 50% of the levels that existed at that point.
i. If the Average Daily Price High Low variation percentage (during the previous 5 trading days) was more than or equal to 15%, or
ii. If the Average MWPL utilization percentage (during the previous 5 trading days) was more than or equal to 40%
- This revised MWPL was only for the purpose of introducing the ban period on fresh positions, and not for identifying the enhanced eligibility criteria for derivatives stocks.
- The end-of-day positions as they existed on the date the exchanges/clearing corporations issued their circulars was not to be impacted.
- If the MWPL exceeded 95%, the derivative contracts were considered to have entered into a ban period. Clients and trading members were then only allowed to decrease their positions using offsetting positions.
- Exchanges and clearing corporations were to monitor if the open interest for scrips that fulfilled the above criteria exceeded 95% of the reduced market wide position limit .
- The penalty structure adopted by the exchanges and CCs at that point could be enhanced to 10 times the minimum and 5 times the maximum penalties.
- For the stocks fulfilling the above criteria, there was to be a phased increase in the margin rate in the cash market, with a minimum of 20%, 30% and 40% by March, 23, March 26 and March 30, 2020 respectively.
- The margins proposed as per the above-mentioned point were to be applicable only in the cash market, for a period of 1 month.
2. Increase in margin for non-F&O stocks in the cash market
For non-F&O stocks with a price band of 20%, which witnessed any intraday price movement greater than 10% over three or more days during the course of the previous month, the margin rate in the cash market was to be increased in a phased manner, with a minimum of 20%, 30% and the higher of 40% or the maximum intraday variation over the previous month, by March, 23, March 26 and March 30, 2020 respectively.
The margins proposed as per the above-mentioned point were to be applicable for a period of 1 month.
3. Index derivatives
With regard to the revised position limits in equity index derivatives (F&O),
- Short positions (short futures, calls and long puts) were not to exceed the stock holdings of Mutual Funds, FPIs, TMs, or Clients
- Long positions (long futures, long calls and short puts) were not to exceed the MFs’ or FPIs’ holdings of cash, government securities, T-Bills and similar instruments
Additional position limits of Rs. 500 crores were to be available to TM-Proprietary, FPIs, Mutual Funds, or Clients in the context of Equity Index Futures and Equity Index Options Contracts.
In case any of the limits mentioned above were exceeded by the entities specified, an additional deposit was to be payable by the entity, equivalent to twice the amount of margin chargeable on the excess position beyond the limits prescribed. Stock exchanges or clearing corporations could retain the deposit for a period of 3 months.
Positions existing on the date the exchanges or CCs issue their circulars were not to be impacted. Only any fresh positions taken would be subject to the limits mentioned above.
4. Flexing of dynamic price bands for F&O stocks
Stocks in the F&O segment were to be subject to dynamic price bands, which could be relaxed if the market trends in either direction, and if a minimum of 25 trades were executed with five different unique client codes (UCCs) on each side of the trade, at or above 9.9 percent, and so on.
The dynamic price bands could also be flexed only after a cooling-off period of 15 minutes after the existing criteria specified by exchanges were met.