SEBI introduces cross-margin facility for futures contracts

05 May 2008

Mumbai: Capital market regulator Securities and Exchange Board of India (SEBI) has introduced cross margin facility for institutional traders, under which margin requirement for a futures contract will be reduced if the buyer holds stocks in the spot market.

The cross margin facility will also be available to positions in cash market having corresponding off-setting positions in the stock futures market. The move is aimed at reducing risks from defaults in the derivative segment, SEBI said in a circular.

"Cross margin facility will be available initially for institutional trades", SEBI said.

Under cross margining the margin requirements in the derivatives market are set-off against the stocks held in the spot market.

The margins will be levied on cash market positions which have off-setting stock futures positions in the derivatives market, SEBI said.

For positions in the cash market which have corresponding offsetting positions in the stock futures, VaR margin will not be levied on the cash market position to the extent of the off-setting stock futures market position.