SEBI Introduces New Norms To Control High Volatility

The regulator's norm to introduced limits on open positions for going short or long in index derivatives is expected to have a major affect on volatility.

Photo: PTI

Mumbai: Markets regulator SEBI on Friday announced measures to control the high volatility which has plagued the country's stock markets. The Sebi said that these new norms will be effective from the beginning of trade on March 23 for a period of one month. These measures include limits on positions that can be taken up by investors in the F&0 segment. Furthermore, the regulator set certain conditions under which mutual funds or foreign investors can place bets on the index futures. The regulator's norm to introduced limits on open positions for going short or long in index derivatives is expected to have a major affect on volatility. The norm mandates that short positions in index derivatives shall not exceed the "Mutual Funds'/FPIs'/Trading Members'/Clients" holding of stocks. Similarly, long positions in index derivatives shall not exceed the "Mutual Funds'/ FPIs' holding of cash, government securities, T-Bills and similar instruments". Sebi said that these measures will be implemented to ensure orderly trading and settlement, effective risk management, price discovery and maintenance of market integrity. Additionally, the new measures are expected to reduce liquidity in the market. Lately, stock markets globally have been quite volatile due to the spread of Covid-19 pandemic and the resultant fear of an economic slowdown. "The movement in the Indian stock market has been broadly in tandem with the other global markets," Sebi said in a statement. "Sebi and stock exchanges will continuously monitor the market developments and review the position and take any further suitable actions as may be required."