NSE Tightens F&O Trading with Over 1,000 Collateral Securities Removed

The National Stock Exchange (NSE) has revised the eligibility criteria for over a thousand securities to be used as collateral, typically pledged by clients to meet margin requirements for intraday or derivatives (Futures & Options) trading.

These changes will be implemented gradually starting August 1, 2024.

NSE Clearing Limited will exclude securities with low trading activity or high impact cost, effectively removing 1,010 securities from the current list of approximately 1,730 eligible ones. This will reduce the number of securities available for F&O and intraday traders to pledge.

Notably, 25 of the securities being excluded have a market capitalization exceeding ₹20,000 crore each. High market capitalization stocks impacted by this change include Adani Power, Yes Bank, Suzlon, Paytm (One 97 Communications), HUDCO, Bharat Dynamics, and Go Digit General Insurance, among others.

In a circular on July 10, NSE stated that its clearing arm will only accept as collateral equity securities that have been traded on at least 99% of the days over the previous six months and have an impact cost of up to 0.1% for an order value of ₹1 lakh. “Equity securities not meeting these criteria will not be accepted from August 1, 2024,” the circular stated.

The stock exchange has issued a preliminary list of securities that do not meet the criteria, based on data available up to the circular's issuance. The final list of acceptable equity stocks will be published in NSE's monthly circular of acceptable securities.

The margin trading facility book is currently valued at approximately ₹73,500 crore, according to Ashish Rathi, Wholetime Director of HDFC Securities. He mentioned in an interview with CNBC TV18 that the impact of this measure remains uncertain and will depend on brokers' acceptance of these securities.

To support the transition for clearing members needing to replace unapproved securities, NSE will gradually increase the haircut as follows:

•    From August 1, 2024: 40% or VAR (value-at-risk), whichever is higher
•    From September 1: 60% or VAR, whichever is higher
•    From October 1: 80% or VAR, whichever is higher
•    From November 1: 100%

“Clearing members are requested to replace unapproved securities with approved collaterals as soon as possible,” stated the NSE circular.

For mutual fund schemes on this list, the haircut will be adjusted to 5% for growth plans of overnight mutual funds, liquid funds, or government securities mutual funds. For other mutual funds, the haircut will be based on the VaR (value-at-risk) margin using 6 standard deviations, with a minimum of 9%. This conservative measure accounts for extreme market movements.