COVID-19: Sebi Takes Measures To Calm Volatile Markets

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COVID-19: Sebi Takes Measures To Calm Volatile Markets
Yagnesh Kansara - 20 March 2020

Mumbai: After much delay the capital market regulator Securities and Exchange Board of India (Sebi) has swung into action to contain the market volatility. Sebi on Friday came out with various measures, including revision of market wide position limit (MWPL), to ensure orderly trading and settlement, amidst continuing volatility in the securities market.

The measures would be effective from Monday, March 23 and would be in place for one month, it said in a release.

Taking note of the continued abnormally high volatility in the market, Sebi said it discussed with stock exchanges (SEs), clearing corporations and depositories appropriate measures that may be taken in the existing circumstances.

Among other steps, MWPL would be revised. For stocks in F&O segment meeting certain criteria, MWPL might be revised to 50 per cent of the existing levels.

The margin for stocks meeting specific criteria would be increased, apart from having revised position limits in equity index derivatives (futures and options).

Dynamic price bands for F&O stocks could be flexed only after a cooling-off period of 15 minutes from the time of meeting the existing criteria specified by stock exchanges for flexing, Sebi said.

"Sebi and stock exchanges will continuously monitor the market developments and review the position and take any further suitable actions as may be required," the watchdog said.

The volatility is mainly on account of concerns over the fallout of the coronavirus pandemic.

With the current volatility witnessed in the stock market, Vijay Kuppa, Co - Founder, Orowealth, said that arbitrage funds may tend to underperform compared to liquid funds. The underperformance could be on account of rise in margin requirements for futures contract which will lead to lower returns on future contracts.

Many markets have introduced a ban on short selling posing a risk for arbitrage funds to generate returns, if the same is introduced in India, Kuppa said.

He added that factors mentioned above may lead to spread compression and hence the very purpose of generating a liquid fund return through arbitrage funds may not be met. In this situation it is advisable that investors holding investments in arbitrage funds to liquid funds.

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