The Securities and Exchange Board of India (SEBI) on Monday allowed institutions to avail themselves of the Cross Margin Facility across the cash and derivatives market. These margins would be levied on cash market position, which have off-setting stock futures positions in the derivatives market.

This decision was taken by the capital market regulator, to improve the efficiency of the use of the margin capital by market participants, SEBI stated in a circular to all stock exchanges.

Value at Risk

It stated that this facility will be available initially for institutional trades and to positions in the cash market having corresponding off-setting positions in the stock futures market.

The market regulator stated that for positions in the cash market which have corresponding off-setting positions in the stock futures, Value at Risk (VaR) margin which is based on the price fluctuation would not be levied on the cash market position to the extent of the off-setting stock futures market position.

However, Extreme Loss Margin and Mark to Market Margin would continue to be levied on the entire cash market position.

Further, the near month stock futures positions three days prior to expiry - would not be considered for cross margin benefit.

SEBI also clarified that there will be no change in the margins on the Futures & Options (F&O) positions.