Sebi extends cross-margin facility to all investors

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Mumbai: In yet another move to ease the liquidity pains and deepen the market and also perk up volumes, the Securities & Exchange Board of India (Sebi) is extending the cross margining norms to all participants across the market. Earlier on May 5, 2008, the regulator had allowed institutional investors to avail this facility.

The Sebi note says, “In order to improve the efficiency of the use of the margin capital by market participants, it has now been decided to revise the existing facility of cross margining and to extend it across cash and derivatives segments to all categories of market participants.”

According to these norms, the positions of traders in both the cash and derivatives segments to the extent they offset each other shall be considered for the purpose of cross margining, as against having separate margins for both the categories. So earlier if you had bought shares of, say XYZ company in the cash market, and sold the same share it the futures market, then your margin would be calculated on both the positions separately. Now, they will be able off-setted and the 25% margin will be applicable on the netted position. Essentially, it will free the money locked in margins and these can then be used to undertake more trades.

“This will deepen the market as it will free a lot of resources for retail traders and also for proprietary trades. There will be more action in the arbitrage segment,” says Hasit Pandya, director with HPMG Shares & Stocks. Though institutional investors were allowed this facility, not much action was seen on this front. “Most of the institutional investors, that is the overseas investors have been hedging against the falling rupee and this has led to creation of an artificial margin for them anyways,” says a trader with an overseas firm. Retail, that is high net worth individuals, traders, speculators and proprietary trades form more than third of the market and therefore there could be an improvement. However, at the moment, market participants would rather wait and watch the developments over a few days.