Circuit Breaker Relax! |
In a significant progress towards the removal of circuit filter system, the SEBI announced the relaxation in the price bands to 16(8+8) percent from existing 12 percent on the identified 200 scrips in which liberal price bands are currently available. It also applies to the scrips under compulsory rolling settlement mode. The relaxation comes into effect from July 3, 2000. In fact a hot debate was carried out over the complete removal of circuit filters but there still seems to be some discomfort by exchanges over the idea.They were skeptical that such a move could lead to an adverse effect on illiquid stocks. So the plan was put on the hold till the markets achieve some maturity. There was also an addition of 163 scrips to the existing list of 44 under the compulsory rolling settlement. The imposition of similar price bands on these scrips under rolling settlement implies that there will be an exit route as well as additional flexibility for the investors.
In another move to simplify the structure of volatility margin systems, the board decided to cut down the number of slabs from six to three. As per the new structure, there will be a margin of 10 percent on scrips with volatility between 80 to 100 percent, 15 percent margin for the volatility of 100-150 percent and 25 percent for more than 150 percent volatility. This action is taken after a sub group on risk management in equity markets made this recommendation. The group also decided to do away with the five per cent additional margin on the sale side, which was imposed on April 26.
In a bid to promote delivery based trading, SEBI has also proposed that in the case of trades marked for delivery, the 30 per cent cash component of margin will not be required. Thus, in the case of trades marked for delivery at the end of the day (to be certified by broker), if the margins for the same are secured by the bank guarantee from the investor to the broker or exchange, the exchange will not insist on any cash component in margins. These trades cannot be squared up during the settlement period and must result in delivery. This will help in reducing the cost of delivery-based transactions and hence result in a higher delivery based business.
Well, in lieu of being in highlight so often nowadays, it
seems that SEBI has finally donned a modern attire and looks committed to formulate
guidelines for making our exchanges as effective as NASDAQ, NYSE and the likes. Its
concerns to make the entire system more simple and hassle free will surely attract
the investor participation.
Subhanshu Gupta