| Bajpai: Smaller is safer
Mumbai, Oct. 29: The Securities and Exchange Board of India (Sebi) today set the derivatives cap for foreign institutional investors (FIIs) in a pre-emptive bid to prevent them from monopolising this segment of the market.
Under the revised norms, FII position in a derivative contract on an underlying stock, stock option contracts and single stock-futures contracts will have to be kept to 20 per cent of the market-wide limit of Rs 250 crore. The ceiling was Rs 50 crore earlier. This means a maximum amount of Rs 250 crore can be invested by five FIIs — with Rs 50 crore each.
“The FII position limit in such stocks shall be 20 per cent of the market-wide ceiling,” a Sebi release said. For stocks in which the market-wide limit is more than Rs 250 crore, the FII ceiling shall be Rs 50 crore.
The move comes after growing apprehensions that foreign funds have been trading heavily in derivatives, and that they could dominate the derivative segment of bourses, given their financial prowess. Today’s announcement is a response to those fears, and an effort to rein in their exposure to this part of the market.
Limits on the index-based derivative contracts and the sub-account position shall remain unchanged. The revisions shall come into effect from Friday, October 31.
For NRIs, the limits shall be the same as client-level position limits specified by Sebi. Therefore, the NRI cap shall be for index-based contracts, a disclosure requirement for any person or persons acting in concert who together own 15 per cent or more of the open interest of all derivative contracts in an index.
For stock option and single-stock futures deals, the gross open position across all derivative contracts on an underlying stock of a NRI shall not exceed 1 per cent of the free float market capitalisation. This will be based on the number of shares, or 5 per cent of the open interest in the derivative contracts on an underlying stock — in terms of the number of contracts.
The limits will be applicable on the combined position in all derivative contracts on an underlying stock. Bourses have been asked to monitor the compliance of FIIs and NRIs with the new limits, Sebi said.