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SEBI sets risk norms for individual stock futures

Our Bureau

MUMBAI, Sept. 17

THE SEBI advisory group on derivatives on Monday put out strict risk containment measures for introduction of individual stock futures which included cap on trading members and clients level positions.

Prof Varma, Chairman, advisory group told newspersons, the group had decided to settle stock futures on cash basis like other derivatives products and would later move to physical settlement.

In order to avoid market manipulation in individual stock futures/option and cash market, the group decided to combine the open positions of aggregate stock futures and options into one. Under this, if a client has position of one lakh stock options and one lakh of stock futures, then the total exposure will be two lakh contracts.

The group also reduced the exposure limit in the individual stock futures and options from Rs 100 crore to Rs 50 crore for each trading member. For each client, initially the position limit has been set at five per cent of the market wide open position. However, the fresh open position for the clients, the limit has been set at one per cent of the total market capitalisation of the company. The committee agreed to adopt the existing risk management framework in the derivatives market for stock futures a lso.

Mr D.R. Mehta, SEBI Chairman, said the risk containment measures would now be placed before the SEBI board in the next meeting for its approval to start stock futures trading. He said that the board had already approved ``in-principle'' the introduction of stock futures in 31 stocks on which options have been permitted.

Prof Varma said the group decided for equal access and level playing field to all category of investors and market participants in the securities markets, margin trading, reduction in the minimum contract size of derivative contract and developing a vibr ant stock lending/borrowing mechanism. But he said that these were not preconditions for the introduction of individual stock futures.

Both NSE and BSE representatives at the meeting said they were in a position to launch cash settled stock futures contracts within a month. However, delivery settled stock futures contracts would require structural changes in the exchange systems and wou ld take three to four months.