The restriction on short-sales, limited to a day, will be lifted and simultaneously replaced by the new margin system, stated a Sebi press release. The graded margin system, aimed at curbing excessive volatility and providing an exit route for investors, is of a permanent nature, according to Sebi officials.

While daily price bands will now stand reduced at 8 per cent from the present 10 per cent, the weekly price band of 25 per cent will be lifted and in its place would be margins depending on the extent of price movement in a scrip, both on the upward and downward movement of the stock.

The additional volatility margins would not be mandatory for scrips quoting at less than Rs 40.Exchanges have, however, been given the discretion to implement the margins on securities trading above the Rs 40-level.

The additional 10 per cent margin levied on short-sale positions reported at the end of the day will continue till July 15.

The committee has, however, decided to exempt select cases of price variation on account of call-money payments, bonus, rights, mergers, amalgamations and scheme of arrangements.

Sebi has also spelt out an objective definition of volatility which would form the basis for the imposition of graded margins. "A security would be considered as volatile if, the price of the security varies by plus or minus 16 per cent or more in a single trading cycle", was the consensus formed by the Inter Exchange Co-ordination group, when it took up the issue last week.

For computing this price variation, the committee has decided to consider the closing price of the concerned stock at the end of each day which would be compared with the closing price at the end of the previoussettlement. In other words, if Pn (T+1) is a price of a security on the ninth day of trading period T+1 and P1 (T) is the price of the security on the last day of trading period `T', then the security will be volatile if Pn (T+1)-P1(T) which would be equal to or greater than 16 per cent.

The committee has also decided to impose additional volatility margin in the following manner: Price variation up to 16 per cent or more would attract an additional 5 per cent-margin , price variation upto 24 per cent or more would attract 20 per cent-margin, price variation upto 32 per cent or more would attract a margin of 30 per cent and price variation upto 40 per cent or more would attract a 40 per cent-margin.

Further, once a security attracts the volatility margin, the margin will continue to be imposed on the security at the margin rate, as of the last day of the previous trading period for the first two trading days in the subsequent trading cycle also.

For the subsequent days of the trading period, marginsapplicable would be computed as per the rates prescribed on the basis of the price variations during the current week or 5 per cent, whichever is higher.

However, in case, the direction of price variation has reversed in the current week and the price variation has exceeded the threshold limits in the reverse direction, then the margins as per prescribed rates would be applicable.

While the move has been aimed at discouraging brokers from building huge outstanding positions, the margin package has also taken into consideration the sales dumped at a particular counter. A similar graded margin will be implemented to curb the fall registered in a particular counter. The margins will be payable on the outstanding buy or sell positions of the security at the end of each day.

The additional volatility margins would be in addition to the existing mark-to-market margins, daily carryforward margins, incremental carryforward margins, concentration margin and special or ad hoc margins. In respect of carryforwardtrades, however, the cumulative margin on a security, on account of the additional volatility margin and incremental carryforward margin, would be subject to an upper limit of 50 per cent.

In a veiled reference to better monitoring and surveillance by stock exchanges, Sebi has said that margins cannot substitute the need for better monitoring and surveillance by the exchanges.