Sebi proposals likely to curb manipulation in F&O trades
Mumbai: The Securities and Exchange Board of India's proposal to change the methodology of calculating outstanding positions in stock futures and options could reduce possibilities of manipulation in derivatives trading. The plan to introduce tighter rules, including regular monitoring of positions during trading sessions, comes amid growing concerns that a few influential firms, armed with superior technology prowess, may be manipulating trades in the country's growing futures and options markets.
In a consultation paper released late Monday, the capital markets regulator proposed changes in the calculation of Open Interest (OI) — the extent of outstanding positions in F&O — and market wide position limit (MWPL) — the maximum number of positions permitted in stock derivatives.
«The regulator may have seen instances where positions are created in advance based on some corporate news, to cross the market-wide limit, and push the security into ban until positions are squared off, so no new positions can be created,» said Rajesh Palviya, head of technical and derivatives research at Axis Securities. «The new mechanism will make this more difficult for the participants to do so.»
When the outstanding positions in stock derivatives reach the maximum permitted threshold of 95% of the market-wide limit, the contract enters the ban period. Once a stock contract enters the ban period, trading is only allowed to cut positions till the market-wide limit touches 80%.
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