Sebi open to margin norms review

The Securities and Exchange Board of India (Sebi) was open to reviewing share margin requirement system, T C Nair, wholetime member, said on Tuesday. THORNY ISSUE The market regulator has been receiving feedback on share market margining requirements According to market players stiff margin norms accentuated the recent sharp correction on bourses Market intermediaries are keen on Sebi introducing longer tenure of stock lending and borrowing contracts and inclusion of more stocks for short-selling The market regulator has been receiving feedback on share market margining requirements that according to market participants accentuated the correction in the market.

The Indian share market witnessed a major fall in the last 10 days of January, with trade getting halted on January 22 after key indices hit the lower limit within one minute of trade commencement.

“However, looking at it does not mean we will change the system or policy,” Nair said.

During the recent sudden and sharp market fall, lots of margin calls were triggered by brokers as well as exchanges to manage the risk. The capital market regulator is also receiving feedback from market participants on institutional short-selling and will study all these suggestions, Nair said.

Among others, intermediaries are keen on longer tenure of stock lending and borrowing contracts and inclusion of more stocks for short-selling. “We will review the tenure of contracts, and inclusion of more stocks as well. But, that will be based on the initial experience,” Nair said.

To start with, contracts with tenure of seven trading days would be introduced and short-selling will be permitted in stocks trading in the derivatives segment.

However, most market participants are of the view that tenure of stock lending and borrowing contracts should match the settlement period of futures contracts or or at least that of the near-month contract.

Stock exchanges were expected to start institutional short-selling from February 1, however, the implementation has been delayed as the Central Board of Direct Taxation has yet to clarify tax treatments of these contracts.

Currently, there are 224 stocks trading in the derivatives segment compared with over 1,300 stocks listed on the National Stock Exchange.

Apart from the stocks that are currently in the derivatives segment, any new additions will automatically be available for short-selling, Nair said.