NSE Revises F&O Trading Guidelines with Significant Collateral Securities Cut
Introduction
The National Stock Exchange (NSE) has announced a significant update to the eligibility criteria for securities used as collateral for intraday and derivatives (Futures & Options) trading. This revision will see more than a thousand securities removed from the current list, affecting traders who use these securities to meet margin requirements.
Gradual Implementation Timeline
Starting from August 1, 2024, the new criteria will be implemented gradually. NSE Clearing Limited will exclude securities with low trading activity or high impact costs, resulting in the removal of 1,010 securities from the current list of about 1,730 eligible ones. This reduction will significantly limit the number of securities available for pledging in F&O and intraday trading.
High-Value Securities Impacted
Among the excluded securities, 25 have a market capitalization exceeding ?20,000 crore each. The high market capitalization stocks affected include:
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Adani Power
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Yes Bank
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Suzlon
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Paytm (One 97 Communications)
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HUDCO
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Bharat Dynamics
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Go Digit General Insurance
New Acceptance Criteria
In a recent circular dated July 10, the National Stock Exchange (NSE) specified new criteria for accepting equity securities as collateral. According to the circular, only equity securities that have been actively traded on at least 99% of the days over the past six months and demonstrate an impact cost capped at 0.1% for orders valued at Rs. 1 lakh will qualify. The circular explicitly mentions that securities failing to meet these criteria will no longer be accepted as collateral starting from August 1, 2024.
Preliminary and Final Lists
The NSE has released a preliminary list of securities that do not meet the new criteria, based on available data up to the issuance of the circular. The NSE plans to publish the definitive list of approved equity stocks in its upcoming monthly circular on acceptable securities.
Incremental Haircut Adjustments
To aid clearing members in replacing unapproved securities, NSE will increase the haircut incrementally:
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Starting August 1, 2024, the haircut for unapproved securities will be 40% or VAR (value-at-risk), whichever is higher.
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From September 1, 2024, the haircut will increase to 60% or VAR, whichever is higher.
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By October 1, 2024, the haircut escalates further to 80% or VAR, whichever is higher.
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From November 1, 2024, the haircut will reach 100%.
Clearing members are urged by the NSE circular to promptly replace unapproved securities with approved collaterals to comply with these new requirements.
Changes for Mutual Funds
The haircut for listed mutual fund schemes will be set at 5%, specifically for growth plans of overnight mutual funds, liquid funds, or government securities mutual funds. For other mutual funds, the haircut will be based on the VaR margin using 6 standard deviations, with a minimum of 9%. This conservative measure is designed to account for extreme market movements.
Conclusion
The NSE's decision to revise the collateral eligibility criteria for F&O trading is a significant move towards enhancing market stability and mitigating risks associated with securities that exhibit low trading activity or high impact costs. As the changes take effect from August 1, 2024, traders and clearing members will need to adapt to these new standards and replace unapproved securities with those that meet the stricter criteria.
Frequently Asked Questions
1.What changes has the NSE made to the F&O trading regulations?
The NSE has revised the eligibility criteria for securities used as collateral, removing over 1,000 securities with low trading activity or high impact costs.
2. When will the new criteria be implemented?
The new criteria will be gradually implemented starting from August 1, 2024.
3.Which high-market capitalization stocks are affected by this change?
Among the impacted stocks are Adani Power, Yes Bank, Suzlon, Paytm (One 97 Communications), HUDCO, Bharat Dynamics, and Go Digit General Insurance.
4.What are the updated criteria for securities to qualify as collateral?
Only equity securities traded on at least 99% of the days over the previous six months with an impact cost of up to 0.1% for an order value of ?1 lakh will be accepted.
5.How will the haircut on mutual fund schemes be revised?
For growth plans of overnight mutual funds, liquid funds, or government securities mutual funds, the haircut will be adjusted to 5%. For other mutual funds, the haircut will be based on the VaR margin using 6 standard deviations, with a minimum of 9%.
6.How does Enrich Money adapt to regulatory changes?
Enrich Money keeps users informed and prepared by providing updates on regulatory changes that impact trading conditions, ensuring our platform aligns with current market standards and practices for a seamless trading experience.
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