Sebi extends cross-margin benefits for index and stock futures with different 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 per cent spread margin for offsetting positions in correlated indices with different expiry dates, while the current 30 per cent margin applies to positions with the same expiry date.

Offsetting positions in an index and its constituents with different expiry dates are subject to a 35 per cent spread margin, while positions with the same expiry date retain the existing 25 per cent  margin.

If the expiry dates are not the same, the spread margin benefit expires on the day of the first expiring position.

Sebi stated that stock exchanges and clearing corporations will monitor participants' cross-margin activities.

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

(With agency inputs)