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Risk containment measures approved -- SEBI puts 31 scrips on futures trading

Our Bureau

MUMBAI, Nov. 1

THE Securities and Exchange Board of India board on Thursday approved the scheme and risk containment measures for individual stock future contracts in 31 scrips on which options trading is currently permitted.

Stock exchanges which have already expressed their readiness have to apply to SEBI for approval.

The decision follows the in-principle approval for stock futures by the SEBI board on September 4.

Speaking to reporters, the SEBI Chairman, Mr D.R. Mehta, said, ``Based on the recommendation of the advisory committee on derivatives, the SEBI board has cleared the risk containment measures for stock futures.''

Under these measures, stock futures would be settled on cash basis. The contract will have a maximum maturity of 12 months. Initially, three contracts of the maturity of one, two and three months would be introduced, SEBI said.

Under the risk containment measures, the initial margin on individual stock futures will be computed on the basis of portfolio-based margining approach to cover 99 per cent of Value at Risk (VaR) over a one-day horizon across the various scenarios of pri ce change and volatility shifts.

The exchanges will also monitor the exposure limits and in case of individual stock futures contracts, the value of gross open position at any point in time, in all stock futures contract shall not exceed 20 times the available liquid networth of a membe r. The exchanges will collect mark-to-market settlement in case of stock futures contract before start of the next day's trading in cash.

In order to deter and detect concentration of positions and market manipulations, the board has prescribed positions limits at the client level, trading member level and market level, the statement said.

For client-level positions limits, the gross open positions of the client across all derivative contracts on a particular underlying will not exceed higher of 1 per cent of the free flow market capitalisation (in terms of number of shares) or 5 per cent of the open position in derivatives contracts in a particular underlying stock (in terms of number of contracts). This position limit would be applicable on the combined position in all derivatives contracts on an underlying stock at an exchange.

At the trading member level, the position limit in derivative contracts on individual stock will be at 7.5 per cent of the open interest or Rs 50 crore, whichever is higher for the derivative contract in a particular underlying at an exchange.

The market-wide limit of open positions on all derivative contracts on a particular underlying stock will be lower of 30 times the average number of shares traded daily during the previous calender month in cash segment of the exchange or 10 per cent of the number of shares held by non-promoters that is 10 per cent of the free float market capitalisation.

Modifications on buyback cleared

Thursday's board meeting also cleared modifications to the SEBI (Buyback of Securities) Regulations.

These modification are consequent to the amendment to the Companies Act last month to simplify the buy-back norms.

As per the modifications, companies will be required to give prior notice of at least seven days to the stock exchange of the proposal to consider buy-back at the board meeting. The decision of the board will be communicated to the stock exchanges within 15 minutes after the conclusion of the meeting.

The company will, within two days of the passing of the board resolutions, file the resolution with SEBI and the stock exchanges.