Tighter controls by SEBI with regard to short-selling will continue till May 28. SEBI has witnessed success in its curbs imposed on short-selling since March 23. The measures played a key role in leading to a near 30 per cent recovery in the Sensex and Nifty from recent low levels.
SEBI in a circular Monday said that the measures announced by it on March 20 till continue till May 28 as the lockdown due to Covid-19 got extended and anticipation of volatility in the markets was still high. Before SEBI announced these measures for the first time in March, domestic position worth around ₹23,000 crore in stock futures segment got unwound putting pressure on the markets.
On March 20, SEBI clamped down on ‘excessive speculation’ in equity derivatives segment by restricting short-selling to the amount of shares held by investors including both foreign and domestic. SEBI then said that ‘short positions’ in index derivatives of any entity, including foreign portfolio investors (FPIs), proprietary traders, mutual funds and clients (retail and high net worth individuals) should not exceed their stock holdings. The same position will now continue till May 28.
SEBI had also increased margins on derivatives trading. Many brokers had started collecting 100 per cent up front money from market players to even buy in cash segment. Similarly, on initiating long positions, SEBI had gone easy to the extent that it has included instruments such as cash, government securities and Treasury Bills, apart from stocks, to calculate the underlying worth of a trader.
SEBI has also said that when a stock hits a certain price band in derivatives, there would be a cooling-off period of 15 minutes before releasing the price band in that counter. Exchanges follow certain criteria to relax price bands in derivatives, and this SEBI’s rule was additional.
SEBI had prescribed an increase in margins to 30 per cent from March 23, and 40 per cent from March 30 for stocks moving 10 per cent or more for three consecutive days. A 40 per cent, or maximum, margin has been set for intra-day volatility in derivative stocks for a month, effective March 30. These rules too will continue further.