SECURITIES AND EXCHANGE BROAD OF INDIA
N. PARAKH
CHIEF GENERAL MANAGER
SMD/DC/CIR-11/02
February 12, 2002
The Chief Executive Officer/ Managing Director
of Derivative Segment of NSE & BSE
and their Clearing House/Corporation.
Re: Scheme of FII Trading in all Exchange Traded Derivative Contracts
Dear Sir,
RBI had vide circular EC.CO.FII/ /11.01.01(16)/2000-01 dated August 7, 2000 permitted Foreign Institutional Investors (FIIs) to trade in exchange traded index futures contracts on the Derivative Segment of BSE and the F & O Segment of NSE provided the overall open interest of the FII would not exceed 100% of market value of the concerned FII’s total investment.
The SEBI Board vide meeting dated December 28, 2001 has permitted FIIs to trade in all exchange traded derivative contracts and laid down the position limits for the trading of FIIs and their sub-accounts. RBI vide circular ECO.CO.FII/515/11.01.01/(16) 2000-01 dated February 4, 2002 permitted FIIs to trade in all the exchange traded derivative contracts subject to the position limits prescribed hereunder. The FIIs shall be under obligation to adhere to the position limits prescribed for them and their sub-accounts. The FIIs shall also comply with the procedure for trading, settlement and reporting as prescribed by the derivative exchange / Clearing House / Clearing Corporation from time to time. The position limits for FII and their sub-accounts shall be as under:
I POSITION LIMITS
At the level of the FII
- In the case of index related derivative products there shall be a position limit at the level of FII at 15% of the open interest of all derivative contracts on a particular underlying index or Rs. 100 crores whichever is higher, per exchange.
- The FII position limit in derivative contracts on a particular underlying stock would be at 7.5% of the open interest of all derivative contracts on a particular underlying stock or Rs. 50 crores whichever is higher, at an exchange.
At the level of the sub-account
- Each Sub-account of a FII would have the following position limits:
- A disclosure requirement for any person or persons acting in concert who together own 15% or more of the open interest of all derivative contracts on a particular underlying index.
- The gross open position across all derivative contracts on a particular underlying stock of a sub-account of a FII should not exceed the higher of:
- 1% of the free float market capitalisation (in terms of number of shares).
or
- 5% of the open interest in the derivative contracts on a particular underlying stock (in terms of number of contracts).
This position limits would be applicable on the combined position in all derivative contracts on an underlying stock at an exchange.The Derivative Segment of the Exchanges and their Clearing House / Clearing Corporation would monitor the FII position limits at the end of each trading day. For this purpose, the Derivative Segment of the Exchanges and their Clearing House / Clearing Corporation would implement the following procedure for the monitoring of the FII and the sub-account’s position limits:
1. The FII would be required to notify the names of the Clearing Member/s and Custodian through whom it would clear its derivative trades to exchanges and their Clearing House / Clearing Corporation.
2. A unique code would be assigned by the exchanges and / or the Clearing House / Clearing Corporation to each registered FII intending to trade in derivative contracts.
3. The FII would be required to confirm all its positions and the positions of all its sub-accounts to the designated Clearing Members online but before the end of each trading day.
4. The designated Clearing Member/s would at the end of each trading day would submit the details of all the confirmed FII trades to the derivative Segment of the exchange and their Clearing House / Clearing Corporation.
5. The exchanges and their Clearing House / Clearing Corporation would then compute the total FII trading exposure and would monitor the position limits at the end of each trading day. The cumulative FII position may be disclosed to the market on a T + 1 basis, before the commencement of trading on the next day.
6. In the event of an FII breaching the position limits on any derivative contract on an underlying, the FII would not be permitted by the exchanges and their Clearing House / Clearing Corporation / Clearing Member/s to take any fresh positions in any derivative contracts in that underlying. However, they would be permitted to execute off-setting transactions so as to reduce their open position.
7. The FIIs while trading for each sub-account would also assign a unique client code with a prefix or suffix of the code assigned by the exchange and their Clearing House / Clearing Corporation to the FII. The FII would be required to enter the unique sub-account code before executing a trade on behalf of the sub-account.
8. The sub-account position limits would be monitored by the FII itself, on the same lines as the trading member monitors the position limits of its client / customer. The FIIs would report any breach on position limits by the sub-account, to the derivative segment of the exchange and their Clearing House / Clearing Corporation and the FII / Custodian / Clearing Member/s would ensure that the sub-account does not take any fresh positions in any derivative contracts in that underlying. However the sub-account would be permitted to execute off-setting transactions so as to reduce its open position
9. The exchanges may assign unique sub-account codes on the lines of unique client codes to each sub-account of a FII, which would enable the derivative segment of the exchange and their Clearing House / Clearing Corporation to monitor the position limits specified for sub-accounts.
II COMPUTATION OF THE POSITION LIMITS
The position limits would be computed on a gross basis at the level of a FII and on a net basis at the level of sub-accounts and proprietary positions.
The open position for all derivative contracts would be valued as the open interest multiplied with the closing price of the respective underlying in the cash market.
Yours sincerely,
N. PARAKH
