Regulatory measures by SEBI on 20th March

March 22, 2020

SEBI has taken a bunch of proactive risk-containment measures in view of the ongoing market volatility. Check this circular. This may have been misinterpreted by many people and so NSE just put out a clarification. Let me summarize this for you. 

Firstly, trading is extremely tough even for the most seasoned professionals in such times. Please trade with as little as possible, or even take a break until the volatility subsides! Secondly, the entire 1200+ member Zerodha team has been working from home for the last two weeks under our COVID-19 contingency plan. This is to ensure business continuity and the safety of our team. Owing to this, for your support requirements, please create a support ticket instead of calling us as our support lines have been experiencing increased delays over the last week. 

Coming back to the circular, here is how the above measures taken by SEBI can affect you. 

Higher Equity Margins 

For stocks with F&O contracts

If the average daily price range, or how much a stock moves in a day, for a stock is more than 15% in the last 5 trading days or if the F&O contracts of these stocks have Market-Wide Position Limit (MWPL or Maximum open interest allowed in the contract) of more than than 40% in the last 5 days, then the minimum margin required to buy such stocks will be 40%. This means that maximum intraday leverages provided for these stocks will be reduced to 2.5 times.

For stocks without F&O contracts

If a stock has an intraday price range of more than 10% for 3 days in the last 1 month, the minimum margin will again be 40%. This again means a maximum intraday leverage of 2.5 times for these stocks.

This higher margin requirement will be applicable for most stocks. We at Zerodha had already increased our margin requirements, so this wouldn’t make much of a difference to you. Also, the above increase in margin is proposed for a period of 1 month. But I am guessing it will be extended if the volatility doesn’t come down.

Revision of MWPL for stock F&O

As I had mentioned earlier, “Market-Wide Position Limit” is the maximum open interest that is allowed in F&O for any stock. To curb speculation during these volatile times, SEBI is reducing the MWPL by 50% if the average daily price range of the stock is more than 15% in the last 5 trading days or if the F&O contracts of these stocks have MWPL (maximum Open Interest allowed in the contract) of more than than 40% in the last 5 days. 

As per SEBI regulations, when OI reaches 95% of MWPL, the scrip goes into “ban period”. When a contract is in ban period, you are only allowed to exit your positions in it, new positions aren’t allowed. Essentially, you cannot take a position that will increase the current OI for the security. With this change, many stock F&O scrips can get into a ban period. With this new rule, 9 stocks have already gotten into the ban period. You can keep a track of MWPL and stocks in ban period on our margin calculator. If you hold scrips which are in ban period, you will be able to exit current positions, you will not be able to add new positions or rollover to the next expiry. 

Also currently when stocks in F&O hit their upper or lower price band, the bands are relaxed. But going forward, such stocks will have a cooling-off period of 15 minutes before allowing trading again.

Revised position limits for index F&O

Big traders, prop desks, FII’s, etc., bring a systemic risk to the markets in these uncertain and volatile times. SEBI has set certain position limits on index F&O contracts, to trade beyond which they would need to bring in 100% of the notional contract value in cash for being long or have stocks worth the notional value to short. 

This position limit is set at Rs 500 crores of notional or contract value for futures and another Rs 500 crores for options positions (Rs 500 crores is approximately 7500 lots of Nifty at the current price). Further, this position limit is calculated on a net basis (based on risk), which means if you are long calls and long puts, your net overall position is 0 to calculate the position limit. 

None of the retail customers take such large positions, so this rule wouldn’t affect you. But it will affect FII’s and prop desks. Check this clarification with examples shared by NSE. This potentially could also mean lower overall open interest in index F&O. 

Hopefully, this clarifies all the confusion created on social media over the weekend. You can follow us on Twitter to stay up-to-date on such topics. 

Finally, here is wishing that all of us do our best to stop the spread of Coronavirus, and all of us can soon get back to living normally. 

 

Stay safe!

Nithin Kamath

CEO @ Zerodha and partnering startups through Rainmatter to help grow and improve the capital market ecosystem in India. Love playing poker, basketball, and guitar. @Nithin0dha on Twitter.

88 comments

  1. Jithin says:

    Sir…Can I take intraday position in index with out considering my stock holding??

  2. Kiran says:

    though not the same, similar changes were introduced for commodities recentl, right? based on volatility of commodities commodities are being categorized with different percentage of margins being required. But this is leading to penalty charges though we maintain funds required as per limits shown in Funds section….. The margin requirement seems to be changing retrospectively from the day before instead of next day….

    I raised a support ticket too but was of not much help
    #20200309623253 – Short margin penalty applied even when funds available

    • Nakul says:

      Hey Kiran, it looks like you have utilized unsettled credits to take positions. The settlement cycle for derivatives is trading +1 day (T+1). Any intraday profits are added to the trading terminal the same day as this is considered to be your encumbered funds. However, it is not considered at the time of margin reporting to the exchange as it is not yet settled. Refer to this Trading Q&A post for a comprehensive explanation of how this works.

      • Kiran says:

        Hi Nakul,

        Thanks for the explanation. Strangely I face this issue only in ZERODHA. I am guessing that other brokers are following a different process then since any profits/loss are updated in ledger immediately next morning and I am able to withdraw the amount without waiting for T+1 settlement

  3. Pritesh Lodha says:

    Can I do regular intraday trading?

  4. Shubham Marathe says:

    Can I do short selling in Equities segments. What is effect of this norms on Short selling in Equities?

  5. CS Shashank Kothiyal says:

    Thanks team for this useful information.

  6. Chetan says:

    WOW ! Thank you so much Zerodha for keeping us informed. I really appreciate.

  7. M K S says:

    I have open position of yes bank call. Option whose expiry is on 26 march
    What to do in such situation

  8. Sundar says:

    Can I hold Nifty PUTS without holding any stocks in demat?

  9. Anuj says:

    Sir, I add nomani how

  10. John says:

    Can i do selling on equity? Is there any penalty for that ?

  11. darshan s a says:

    can i buy options normally?

  12. Mayur says:

    Can we buy index puts irrespective of stock holdings.

  13. Bhavesh Arun Gurav says:

    Sir, for equity stocks also margin has increased or is as usual ?

  14. Iqram says:

    Can I do short selling intraday (nifty and banknifty)

  15. Rakesh says:

    Sir can go long in cash segment in NCC?

    Pls reply fast mkt is opening.

  16. Bhadresh Gabani says:

    Sir

    I have Yesbank PIS account which moved to HDFCbank PIS account. Your phone lines are not working. Your team is sitting on the service request form last 4 days. Please show us some mercy.

    • Matti says:

      We are operating under our COVID-19 contingency plan for business continuity and the safety of our team. Over 1200 members of our team are working from their homes. Due to this your support ticket can take some additional time to be responded to. We appreciate your patience and cooperation. Stay safe!

  17. gautam says:

    50,000 penalty on whom in which case.plz tell

  18. Mohanish Gulati says:

    Hi!!
    Any tentative date, when margins will be available for intraday traders in MCX??

  19. shalini says:

    I have received the following sms

    “Your purchase of XXXXXX on was short delivered. You will not be able to see/sell these stocks on Kite tomorrow. You will either receive the shares to your demat account or the funds credited to your ledger by the end of 2020/03/23.”

    I bought these shares on 18 march.

    What does this means and why have I received this message. How can I get the delivery of these stocks.

  20. Charles karunakaran says:

    Hi,
    What would happen if we are holding positions of banned scripts?

  21. rahul says:

    SO all margins are blocked for intraday..??? for how many days..??

  22. Shah says:

    Sir, Re Nifty futures / Nifty options
    Do u have above futures and options in mini qty like S&P mini in US and do u have weekly expiry Nifty Options & if yes to all these questions where do I lookup in kite and can I trade using my equities AC balance

  23. Manzoor says:

    Is same rules regarding margin in commodity segments

  24. Sunil says:

    Hi Nithin, thank you.
    I had raised a support request few weeks ago to increase the number of years we can see on chart on Pi, which is giving error for beyond 5 years. Now with markets dropping this much it is more necessary. Could it be done anytime soon? It was working fine 5-6 months ago, and after the updates the Max option on chart throws errors.

  25. munish says:

    could not call customer care. waited for 30 min but was in queue
    please give me zerodha mail id

  26. Pradeep says:

    hi.
    can i close 7500 qty. april 8500 pe.
    I am carrying long.
    If i want to close, maximum how much i can today.

  27. pradeep says:

    Hi nitin.
    kindly answer my query plz.

    thanks

  28. Karan Bobade says:

    Today, I am seeing CNC + MIS multiplier = 5 for reliance, for equity intraday trading. Does this means I will need 10k to buy stocks worth Rs 50k?

  29. Rahul says:

    I hold a position in a banned stock. Do I have to square off the position today or I can do It till expiry. WIll this incur any fine?

  30. FO Trader says:

    Hi,

    I have FO position which is in Ban category. What is the procedure or next steps.

    Regards

  31. Vineet says:

    Is mandatory margin of 100% over 25th and 26Th March applicable on all stock based options. I hold BHARTIARTL 500 CE MAR (current price 407). Absolutely out of the money. Can I hold it beyond tomorrow without any margin requirement? I hold significant position and hence an early response shall be appreciated

  32. Rajesh says:

    Sir,
    Why are you not allowing BO /CO for intraday traders. At least some margin must be given to intraday traders with strict stop loss so that advantage of the volatility may be taken.MIS with x1 or x3 is not suffice.

  33. Rakesh says:

    Hello,

    I bought Reliance 100 shares yesterday why it’s not showing the same in kite?

    I want to close all my 42 accounts in Zerodha as I have never experienced such worst service by any broker.

    Answer me ASAP as mkt is opening!

  34. RAJESH KUMAR says:

    Please allow bo Co for intraday traders

  35. Sadaf says:

    Hello, Could you please confirm below points written In Nse Circular Index Derivative section,

    1. 3(i)(a) Shorting can be done only if equity holding of notional value exists in account, Can we still short if we have required free cash in Zerodha Funds ?

    2. In 3(iii) Double Margins are required and Shall be held for 3 months by nse, Is this applicable to retail traders ?

    3. Applicable for others wef March 27, Who are others, retail traders ?

    4. Also, Please describe what is the change in margins required for going Long or Short Futures on Delivery basis, Is it same as before or has increased(for holding till expiry).

  36. Babu says:

    Can i short sell in MIS now without any holdings, i have enough funds without margin. is there any penalty?

  37. Vinay says:

    How much margin is required to short sell two NIFTY 7500 PE put options at 343 for april series and hold it till expiry?

    If put option goes till 1000 in between the month then will you be squaring off or how much funds is required to hold them till expiry?

  38. Subhash Raskar says:

    Can i short sale individual stock futures over night or i need cash shares to short and any penalty.

  39. Amit says:

    Please see my video on my experience with Zerodha.. and other videos
    https://youtu.be/QvJcLnxWplI

  40. Vinod Bhagchandani says:

    if I take an fno position in the stock which is not in ban and the stocks goes in ban next day …do I need to square off position.Is there any penalty if I do not square off my position? also, can I square of my position for one strike say 100 CE and buy 90 CE so the net open interest is same? Is there any penalty on this?

    • Matti says:

      You need not square off an existing position. Only new positions aren’t allowed. Rollover of strikes is normally allowed, but under these new measure, rolling over isn’t allowed for now. You can only exit existing positions.

  41. Murali says:

    What is the process for getting delivery of purchased stocks in the cash market.

    Since you allow purchase only to the extent of funds in my account at your place. This clears my obligation completely . In view of the same I would prefer to receive the stocks purchased directly into my another demat account which is mapped to my account but not at your place. In short Direct Exchange payout, this would reduce costs of transaction. This process is already detailed by the exchanges.

    • Matti says:

      We don’t offer this service. Shares are credited to your Zerodha demat account and you can move them from there if you so wish.

  42. Murtaza says:

    Sir What is the formula to calculate the margin in nifty future

  43. Nachiket says:

    I am not able to exit an existing short posn of option on a ban period day. What could be the reasons?

  44. Sk garg says:

    Can i trade in ban f and o future for intraday only

  45. Ajay says:

    On 19th jun PNB was in ban period… but i traded intra day on 34 call strike price…. i do only intra day… not carry overnight…. plz tell me, is there any penalty for me…if yes, what is the amount…

  46. Kunal says:

    Hi Nitin,
    Hope you are doing good.

    I wish to discuss Options strategy execution and effective use of margin with you on Zerodha platform.
    Is there any way you can be contacted directly ?

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