BSE has announced that its subsidiary, Indian Clearing Corporation, will introduce an extra 15% margin on certain securities starting January 1. This decision is made in response to the recent record highs achieved by Indian benchmark indices and the growing involvement of retail investors in the derivatives segment.
This new measure will specifically target derivatives where the top 10 clients of any brokerage firm make up over 20% of the Market Wide Position Limit (MWPL). MWPL refers to the maximum number of open contracts - both futures and options - that are permitted on the stock exchange for a particular stock.
The concept of an exposure margin, which is the additional margin, comes into play here. It’s an extra buffer collected on top of the existing margins. This additional margin is essential to safeguard against potential liabilities brokers may face due to sudden market swings.
The need for this precautionary step was highlighted by Nuvama Alternative and Quantitative Research, which noted a significant build-up of aggressive long positions by high net worth investors in the December series.
In cases where an additional surveillance margin is already in effect, BSE states that the higher of the two margins – either the extra exposure margin or the surveillance margin – will be applied. The securities that fall under this new framework will be selected based on data from the past three months and reviewed monthly, as per BSE’s recent statement.
