The National Stock Exchange of India Ltd. has increased margins on weekly options of Nifty Bank starting the first week of April. The move follows a BloombergQuint story highlighting the possibility that traders could manipulate the Nifty Bank Index on weekly expiry days via positions in stocks such as HDFC Bank Ltd., Kotak Mahindra Bank Ltd., ICICI Bank Ltd. and Axis Bank Ltd.
These stocks have a heavy weightage in the index. On Wednesday, the NSE issued a circular instructing its clearing corporation to closely monitor the open interest in derivatives on sectoral indices and if required impose higher margins as may be deemed necessary.
For starters the initial margins for Nifty Bank futures and options will be calculated depending on the revised price span range, defined as the probable price change over a one day period.
Simply put — until now the SPAN margin was 7.07 percent of the underlying value. It will now gradually increase to 7.78 percent, 8.49 percent and 9.19 percent, effective April 5, 12 and 22.
Thus, the initial or SPAN margin will rise by 30 percent by Apr. 22. Here's an illustration of how the total margin is likely to increase over April.
Current Margin On 1 Lot Of Nifty Bank
- SPAN Margin: (20 x 30000) x 7.07 percent = Rs 42,420
- Exposure Margin: (20 x 30000) x 4.24 percent = Rs 25,440
- Total Margin = Rs 42,420+ Rs 25,440 = Rs 67,860
This indicates the margin will increase from the current Rs 67,860 to Rs 80,580 by Apr 22.
The increase in margin "will assist in preventing further management of the index”, Jitendra Panda, managing director and chief executive officer at Peerless Securities told BloombergQuint. Another positive is the monitoring of activity on not just Nifty Bank price moves but also that of the top weighted stocks that can swing the index, he added.
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