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SEBI eases circuit filters, volatility margins

India's stock markets regulator on Wednesday raised the daily stock price movement limits for a select group of shares and relaxed margining norms for secondary market trades, in a bid to facilitate easy trading for investors.

The changes were made on the recommendations of a Securities and Exchange Board of India, or SEBI, risk management group which includes representatives of stock exchanges.

Circuit breaker limits eased

SEBI said the circuit filters for a group of 200 actively traded stocks will be relaxed to 16 per cent, half an hour after an eight per cent limit has been reached, from July 3.

Shares are not allowed to exceed the circuit filter limits in either direction on any given day.

This will also be applicable for all the stocks that are traded in a compulsory rolling settlement. Presently there are 44 stocks in this segment and 119 more will be added on June 26.

There has been a debate among market participants about the need for circuit limits since they restrict share price movements. Investors could also get trapped in their positions in times of volatility if there is a limit on the price.

SEBI chairman D R Mehta said the stock exchanges were against doing away with the circuit limits altogether, since they provided a measure of stability to the market in volatile times.

SEBI had raised the limit from eight per cent to 12 per cent after a half hour cooling period just two months ago.

Volatility margin norms eased

SEBI also said it was relaxing the volatility margin norms for stocks traded in the weekly account, starting after June 30.

The threshold for applicability of the volatility margin will be 80 per cent instead of the current 60 per cent, it said. The margins will range from 10 to 25 per cent as compared to the 5-30 per cent now.

Shares traded in the weekly account also attract exposure-linked margins and mark to market margins.

But SEBI said the shares in the compulsory rolling settlement will not attract additional volatility margins.

Shares in the rolling segment are traded in a T+5 cycle where trades are settled on the fifth working day after the trade.

Aims to increase delivery-based transactions

SEBI said it wanted to encourage more delivery-based transactions and relaxed margin norms for trades backed by delivery.

A large portion of trades in Indian markets is of a speculative nature and is squared off either daily or at the end of the settlement.

Presently exchanges collect 30 per cent of the margins payable by investors in cash. SEBI said that henceforth for trades that are marked for delivery at the end of the day, if the margins are secured by a bank guarantee, the exchange will not insist on any cash component in the margins.

But these trades cannot be squared up during the settlement period and must result in delivery, it said.

Business