CAPITAL MARKETS

 

1- FOREX KERB WATCH

2- COT WEEKLY REVIEW

3- FINEX WEEK

4. STOCK WATCH
5. STOCK MARKET AT A GLANCE
6. RISK MANAGEMENT AND ERRATIC TRADING PATTERNS AT THE BOURSES


RISK MANAGEMENT AND ERRATIC TRADING PATTERNS AT THE BOURSES

An effort to contain market volatility and system risks
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PAGE REPORT
Updated Apr 09, 2005
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One of the reasons identified for the recent crash of stock market was futures contract. While some immediate steps were taken to avoid free-fall, the efforts are still going on to avoid such mishaps in the future. The steps taken to consolidate futures market include:

POSITION LIMITS FOR FUTURES MARKET

The earlier decision that member's exposure in Futures Contract in a scrip, should not exceed 10% of the Free-Float of such scrip, is withdrawn. The new decision in this respect is, such exposure shall not exceed 1% of the Free-Float or the number of shares (whichever is higher), being determined by a slab. Such slab will be developed by the Exchange, while considering the price factor and Free-Float of every scrip available in Futures Market. This measure will be implemented from May 2005 Futures Contract. The Brokers, in the similar manner, shall also impose exposure limits on each of their client.

NETTING SHOULD NOT BE ALLOWED IN READY & FUTURES MARKET FOR THE PURPOSE OF CAPITAL ADEQUACY

From April 04, 2005, for the purpose of calculation of Capital Adequacy, netting shall not be allowed between the Exposures of Ready & Futures Market.

COLLECTION OF LOSS MARGIN IN FUTURES MARKET ON HOURLY BASIS

It is decided that mark-to-market losses, of the members having exposures of more than 200 million, in the Futures Market, shall be collected twice in a day. This measure will be implemented from May 2005 Futures Contract.

PERCENTAGE OF INITIAL MARGIN IN READY MARKET SHOULD BE COLLECTED IN CASH

It is decided that 33.33% (one-third) margins against exposure and mark-to-market losses in Ready Market, should be collected in cash from June 2005. Moreover, the Exchange shall pay return to the members on all cash margins and a proposal in this respect be placed before the Board in May, 2005.

UNIQUE/GLOBAL CLIENT IDENTIFICATION

This mechanism shall be developed by CDC and implemented by November 30, 2005.

COLLECTION OF GROSS MARGIN

 

 

Collection of Gross Margin i.e. margins based on client level netting shall be implemented by December 31, 2005.

INTRODUCTION OF CONCENTRATION MARGINS

Concentration Margins shall be introduced in July 2005.

MARGINS BASED ON VOLATILITY & LIQUIDITY

Margins mechanism based on volatility & liquidity shall be implemented by the end of September 2005. Existing Risk Management system shall be reviewed by an independent consultant and Risk Management Manual shall be developed by the end of November, 2005.

COLLECTION OF MARGINS 100% IN CASH BEYOND RS200 MILLION

From May, 2005 Futures Contract, deposits against exposures exceeding Rs200 million shall be collected in cash. Moreover, the existing slab in Futures Market, for margin collection, revised as under:

EXPOSURE LIMITS

DEPOSIT PAYABLE AGAINST EXPOSURE

Up to Rs100 million

10% of the exposure amount
(50% cash + 50 % in approved securities)

Over Rs100 million up to Rs200 million

Rs10 million plus 12.5% of the amount exceeding Rs100 million (50% cash + 50% in approved securities)

Over Rs200 million up to Rs300 million

Rs22.5 million plus 22.5% of the amount exceeding Rs200 million (100% cash)

Over Rs300 million

Rs45 million plus 30% of the amount exceeding Rs300 million (100% cash)

LIMIT OF CAPITAL ADEQUACY IN FUTURES MARKET

Total Exposure of a member in Futures Market should not exceed 10 times of the Net Capital Balance, from May 2005 Futures Contract. However, the overall total Capital Adequacy of a member shall remain 25 times of Net Capital Balance of such member.

FUTURES MARKET - FROM DELIVERABLE TO NON-DELIVERABLE

With effect from July, 2005 Futures Contract, Futures Market shall be 'Cash-Settled' only. The striking price (settlement price) shall be determined by a pre-close session, to be developed by the Exchange, similar to its existing pre-open session. Moreover, from July, 2005 Futures Contract, three contracts of 30 days, 60 days and 90 days shall be opened simultaneously.

CHANGE IN THE CIRCUIT BREAKERS

From the date of opening of May, 2005 Futures Contract, Circuit Breakers in Ready and Futures Market shall be fixed at:

Upper Limit 5% or Re1, whichever is higher
Lower Limit 5% or Re1, whichever is higher

ORDERS IN PRE-OPEN COULD NOT BE CHANGED

From April 4, 2005, no editing or deletion of orders (either Bid or Offer) shall be allowed, in the Pre-open session. However, new orders shall continue to be accepted by the system.

REMOVAL OF CIRCUIT BREAKERS AND SHIFTING A SCRIP TO T+1

It was agreed that an exit option be developed, whereby a scrip which is stuck up at the Circuit Breaker (either in Ready or Futures Market), twice in a day, for certain period of time, shall be shifted over to T+1 from T+3 in Ready Market. Whereas its treatment in Futures Market and the remaining parameters once developed, will be notified at the earliest, so that the same could be implemented from May, 2005 Futures Contract.

ELIGIBILITY OF A SCRIP IN FUTURES MARKET

From May, 2005 Futures Contract; no scrip shall qualify for Futures Market unless its Free-Float is 100 million or more. Moreover, the number of contracts opened (Open Interest) in a scrip, shall not exceed the Free-Float of such scrip. Open Interest means sum of net buy and net sell (outstanding position) of all members, operating in such scrip.