Sebi Moves to Calm Markets, Makes Short Selling Tough

Mumbai/New Delhi: The Securities and Exchange Board of India (Sebi) on Friday came out with measures in light of the market volatility.

The regulator limited short selling by investors, including foreign portfolio investors and mutual funds.

This will reduce the speculative activity as well as intraday positions.

However, there will not be forcible square off of positions, but with lower market wide position limits, the carry forward of trades would be limited,” said Independent Analyst Ambareesh Baliga.

The other measures include cutting the market-wide position limit on F&O stocks by 50 per cent. The regulator will also raise cash market margins to 40 per cent in a phased manner.

The proposed margins would only be applied in the cash market and will be applicable for one month.

The regulator also said that the dynamic price bands for F&O stocks may be flexed only after a cooling-off period of 15 minutes from the time of meeting the existing criteria specified by stock exchanges.

Overall, these measures will reduce the volatility drastically on either side. The step will reduce more of the short as well as somewhat of long positions.

It will also impact the volumes on the bourses,” said Milan Vaishnav, Consultant Technical Analyst at Gemstone Equity Research and Advisory.

Those who have existing positions will face two problems.

They might have to liquidate some of their positions to make good of the margins or they might need additional money to meet the margin requirement,” he added.

While explaining these measures, Vaishnav said that stocks will enter the market-wide positions earlier than it used to be before.

It will also stop creation of fresh positions until they are out of the F&O ban.

In the cash market Sebi said it will increase the margins in a staggered manner.

This will reduce the levered positions in this segment.

Vaishnav said that those who were shorting intraday will be affected by these measures.

Through these steps Sebi has ensured that the notional value of shorts does not exceed the value of the holding of a stock.

Long bets also have been limited to the extent of value of holding of cash government securities, treasury bills and similar instruments.

This measure will ensure that there won’t be any speculative long position in excess of the buying capacity of the entity.

Taking note of the continued abnormally high volatility in the market, Sebi discussed with the stock exchanges, clearing corporations and depositories appropriate measures that may be taken in the existing circumstances,” Sebi said in a note.

The measures will be applicable from March 23.

The immediate impact of these measures will be reduction in volumes in the cash and F&O markets.

The volatility in individual stocks could also reduce, although delivery sales and buys could still result in higher volatility resulting in traders in such stocks getting impacted.

Liquidity in individual stocks may get impacted to some extent,” said Deepak Jasani, Head Retail Research, HDFC Securities.

Original Source: economictimes.indiatimes.com

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