The National Stock Exchange (NSE), last week, announced its decision to implement an additional 15 per cent exposure margin on securities falling under the market-wide position limit (MWPL). This new margin requirement is set to take effect from January 29, specifically targeting derivatives associated with securities where the top-10 clients contribute to more than 20 per cent of the MWPL.
The MWPL signifies the maximum allowable number of open futures and options (F&O) contracts permitted by the exchange for a given stock. It is calculated as 20 per cent of the shares in free float, which are the shares owned by non-promoters. This limit also determines the initiation of an F&O ban on a stock. If the aggregate Open Interest (OI) in F&O across exchanges exceeds 95 per cent of the MWPL at the end of a trading day, the stock enters an F&O ban the following day. Normal trading resumes when the aggregate OI drops to 80 per cent of the MWPL.
For securities subject to an additional surveillance margin, the higher of the two — either the newly-introduced exposure margin or the existing surveillance margin — will be applied. The identification of securities under this framework will be based on a three-month rolling data analysis and will undergo monthly reviews.
The exposure or additional margin is an extra charge imposed beyond the existing margins. This measure is taken to safeguard against a broker’s potential liability arising from market volatility.