TaxTMI 
TaxTMI 
Scheme for introduction of Single Stock Futures and the Risk Containment Measures
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.... of futures on 31 stocks, in which options contracts have been permitted by SEBI. Further, the Board desired that the Advisory Committee on Derivatives, • devise a detailed scheme for the introduction of this product, • specify the risk containment measures which could include cash settlement of Single Stock Futures, and • specify the time frame in which futures on Single Stocks could be introduced after assessing the preparedness of the exchanges in terms of infrastructure. On the risk containment measures the Advisory Committee on Derivatives agreed to adopt the existing risk management framework in the derivative market for Single Stock Futures. The committee asked SEBI to set various parameters like volatility estimates, price range, minimum margin level, calendar spread charges, etc., in consultation with the exchanges. The scheme of introduction and the risk containment measures for Single Stock Futures contracts framed in consultation with the stock exchanges, within the framework specified by the Advisory Committee on Derivatives, and approved by the SEBI Board in its meeting On November 1, 2001, are as follows- 1. The S....
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....is specified at 4%. For stock option contracts the price scan range is specified at three and a half-standard deviation (3.5 sigma) and the volatility scan range is specified at 10%. There is also a minimum margin requirement. For index futures contracts it is specified that in no case the initial margin shall be less than 5% of the value of the contract. For index options a short option minimum charge of 3% of the notional value of all short index option has been prescribed and in the case of stock option contracts, a short option minimum charge of 7.5% of the notional value of all short stock option contract has been prescribed. In the case of Single Stock Futures, the initial margin would be computed as the worst scenario loss of a portfolio comprising of all the positions of a client in all the futures and options contracts. For Single Stock Futures the price scan range would be 3.5 Standard Deviation (3.5 sigma) and in no case the initial margin for Single Stock Futures contract shall be less than 7.5% of the value of the Single Stock Futures contract. The SPAN margining system, which has been adopted by both BSE and NSE, does not have the provision to provide for charging ....
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.... Therefore, the exchanges would be required to ensure that 5% of the notional value of gross open position in Single Stock Futures contracts is collected/adjusted from the liquid networth of a member on a real time basis. Exposure limits are in addition to the initial margin requirements. Exposure limit for calendar spreads in the case of Single Stock Futures contracts : As prescribed in the case of index futures contract, the Calendar Spread shall be regarded as an open position of one-third (1/3rd) of the mark to market value of the far month contract. As the near month contract approaches expiry, the spread shall be treated as naked position in the far month contract three days prior to the expiry of the near month contract. The same provision shall apply to the spread positions in the case of Single Stock Futures contract. If the closing out of one leg of a calendar spread causes the members' liquid net worth to fall below the minimum levels specified, his terminal shall be disabled and the clearing corporation/house shall take steps to liquidate sufficient positions to restore the members' liquid net worth to the levels mandated. D. Real Time Computation - The comp....
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....alendar spread charge shall be adjusted against the available Liquid Networth of the member. The members in turn shall collect the initial margin from their clients. F. Position Limits - On the introduction of index futures contracts, index options contracts and stock options contracts the trading member level and the market wide position limits were prescribed. However, with the introduction of Single Stock Futures contracts, a customer level position limit is also prescribed to deter and detect concentration of positions and market manipulation. The market wide position in the case of stock specific derivative contract (both Stock Options and Single Stock Futures) shall be applicable on the cumulative open positions in derivative contracts on that that stock at an Exchange. The volumes in the derivative markets are growing steadily and therefore, position limits shall be reviewed by the Advisory Committee on Derivatives from time to time and also the Advisory Committee shall be empowered to weed out any operational issue in implementation of the position limits. Client/Customer level position limits : The gross open position across all derivative contracts on a particular u....
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....ough more than one trading member and monitor his cumulative positions taken through all the members of the exchange. This would take a longer time and would be implemented simultaneously for both the cash segment and derivative segment, as the database shall be common for both the markets. Trading Member Level : At the trading member level the position limit in derivative contracts on a particular stock would be at 7.5% of the open interest or Rs. 50 crores whichever is higher for derivative contract in a particular underlying at an exchange. The exchanges shall however specify lower Trading Member level limits for generating surveillance alerts. Once a member reaches the position limit in a particular underlying then the member shall be permitted to take only offsetting positions (which result in lowering the open position of the member) in derivative contracts on that underlying. In the event, that the position limit is breached due to the reduction in the overall open interest in the market, the member shall be permitted to take only offsetting positions (which result in lowering the open position of the member) in derivative contract in that underlying and no fresh posit....