CHIEF GENERAL MANAGER
DERIVATIVES AND NEW PRODUCT DEPARTMENT
October 29, 2003
The Managing Director / Executive Director
of Derivative Segment of NSE & BSE
and their Clearing House / Corporation.
Sub:- Trading by FIIs and NRIs in Exchange Traded Derivative Contracts
This circular is being issued in exercise of powers conferred by section 11 (1) of the Securities and Exchange Board of India Act, 1992, read with section 10 of the Securities Contracts(regulation) Act 1956, to protect the interests of investors in securities and to promote the development of, and to regulate the securities market.
This circular is in continuation with SEBI circular SMD/DC/Cir-11/02 dated February 12, 2002 issued to Derivative Exchange / Segment and their Clearing House / Corporation (hereinafter collectively referred to as Exchange).
Based on the recommendation of the Advisory Committee on Derivatives, SEBI had modified the Trading Member position limits in stock option and single stock futures contracts. Since the FII position limits are linked to Trading Member limits, the matter was referred to the High Level Co-ordination Committee (HLCC) and RBI was requested to issue directions effecting the necessary modification in the FII position limits as well. SEBI had also requested RBI to permit Non Resident Indians (NRI) to invest in SEBI approved exchange traded derivative contracts.
RBI vide circular A.P.(DIR Series) Circular No.13, dated September 1, 2003 has specified that FIIs & NRIs may trade in all exchange traded derivative contracts approved by SEBI from time to time subject to the limits prescribed by SEBI. Accordingly the position limits for FIIs and NRIs shall be as under:
I) POSITION LIMITS
The FII position limits in a derivative contract on a particular underlying stock i.e. stock option contracts and single stock futures contracts, specified in SEBI Circular SMD/DC/Cir-11/02 dated February 12, 2002 stand modified in the following manner :-
Ø For stocks in which the market wide position limit is less than or equal to Rs. 250 Cr, the FII position limit in such stock shall be 20% of the market wide limit.
Ø For stocks in which the market wide position limit is greater than Rs. 250 Cr, the FII position limit in such stock shall be Rs. 50 Cr.
The FII position limits in Index based derivative contracts and the sub-account position limits shall remain unchanged. The modified FII position limits shall come into effect from October 31, 2003.
The position limits for NRIs shall be the same as the client level position limits specified by SEBI. Therefore, the NRI position limits shall be –
o For Index based contracts, 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.
o For stock option and single stock futures contracts, the gross open position across all derivative contracts on a particular underlying stock of a NRI shall not exceed the higher of:
· 1% of the free float market capitalisation (in terms of number of shares).
· 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.
II) MONITORING OF POSITION LIMITS
The Exchange shall monitor the FII position limits and the NRI position limits. The NRI would be required to notify the names of the Clearing Member/s through whom it would clear its derivative trades to the Exchange. The Exchange would then assign a unique client code to the NRI. The Exchange shall monitor the NRI position limits in the manner similar to that specified for FIIs and sub-account in SEBI SMD/DC/Cir-11/02 dated February 12, 2002.