SEBI unveils measures to tackle market volatility

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1. The Securities and Exchange Board of India (Sebi) on Friday announced measures to control volatility in stocks.

2. Curbs on short selling, a steep increase in margins, a 10-fold increase in penalties, and reducing the outstanding positions available for derivatives trading are some key changes the regulator announced.

3. SEBI has said the short positions in the derivatives market cannot exceed the value of the holdings of the underlying stocks or the collateral provided by them.

4. The aim was to ensure effective risk management and market integrity, a statement said.

5. An additional position limit of Rs 500 crore will be available for the futures and options (F&O) segment.

6. Market players said the move was to discourage traders from aggressively building short positions.

7. The market regulator and stock exchanges have been under pressure to rein in huge fluctuations in stocks, which were causing heartburn to long-term investors.

8. The benchmark indices have dropped 12 per cent this week and 22 per cent so far this month.

9. Further, SEBI has halved the so-called market-wide position limit (MWPL) for highly volatile stocks — those that see an average daily variation of 15 per cent during the week.

10. In recent weeks, many stocks in the futures and options (F&O) segment have seen fluctuations of up to 40 per cent daily.

11. Meanwhile, foreign portfolio investors (FPIs) and mutual funds among others will be allowed to take short positions in index derivatives only to the extent of the notional value of their holding in the underlying stocks.

12. SEBI has said the robustness of the risk management frameworks has helped in the smooth functioning of the markets.

13. In recent weeks, many global markets have taken measures such as prohibiting short selling, while some have gone to the extent of shutting down the markets.

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