October 30, 2019

This is very good news - SEBI may lower margin requirements for hedged trades in F&O segment

A recent study by EY showed that margins on derivative trades in India are up to 500 times higher compared to global exchanges.

SEBI-appointed Risk Management Review Committee (RMRC) met on October 16 and agreed to most recommendations of the sub-working group. This group had proposed lower margins for hedged positions and status quo on unhedged derivative positions.

A hedged position consists of two opposing trades in the same security. This reduces risk, but at the same time also limits profits.

For instance, in a put-call parity arbitrage trade, which involves buying the call option and selling a put option of the same strike price (say 11,500 on the Nifty) and selling the Nifty futures, a trader currently has to pay Rs 1.16 lakh as margin. Under the proposed margin structure, the margin applicable to this combined trade will fall to Rs 5,000.

If there is only one leg of the trade, then the present margin rules will apply.

Read more at https://www.moneycontrol.com/news/business/sebi-may-lower-margin-requirements-for-hedged-trades-in-fo-segment-4586591.html

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