SEBI Extends Cross-Margin Benefit For Index And Stock Futures With Varying Expiry Dates

Capital markets regulator SEBI on Tuesday extended the cross-margin benefit between index futures position and constituent stock futures position in the derivatives segment for offsetting positions with different expiry dates.

At present, the cross-margin benefits are provided if both the correlated indices or an index and its constituents, as the case may be, have the same expiry day.

Cross margining enhances liquidity and financing flexibility for entities by reducing margin demands and decreasing net settlement obligations.

"In discussion with stock exchanges, clearing corporations and risk management review committee of SEBI, it has been decided to extend the cross-margin benefit on offsetting positions having different expiry dates," the regulator said in a circular.

This is subject to certain conditions including a 40% spread margin will apply for offsetting positions in correlated indices with different expiry dates, while the existing 30% margin stays for positions with the same expiry date.

For offsetting positions in an index and its constituents with different expiry dates, a 35% spread margin applies, while the existing 25% margin stays for positions with the same expiry date.

The spread margin benefit ends on the expiry day of the first expiring position if the expiry dates are different.

SEBI said that stock exchanges and clearing corporations will monitor cross margin activities of participants.

The new framework would be effective three months from the date of issue of this circular.