Those who have been trading in Futures & Options segment are all aware of the term “Stock in Ban Period”. From time to time, the Exchange notifies some stocks to be entered into the Ban period. Most of the people who trade in Futures & Options only know that trading in these stocks is prohibited as long as they stay in the Ban period. Let us throw some light on this concept so that it could help the traders understand the related rule.

With the introduction of Futures & Options Segment, a robust Risk Management System occupied the top place in the priority list of NSE. The concept of Futures & Options is based on leverage and wherever there is leverage, there is risk. In order to design the risk management system, the Exchange brought the concept of Liquid Asset, comprising of Cash and Non-Cash components, which the clearing members were required to provide to the Exchange. The next step was introduction of online position monitoring and margin system, wherein the concept of Span Margin or Initial Margin, Premium Margin and Exposure Margin were established.

The third step which was introduced to strengthen the Risk Management System was Position Limit. Position Limit is mainly of three categories:

• Trading Member wise Position Limit
• Client Level Position Limits
• Market Wide Position Limits, which is the most important one

The market wide limit of open position (in terms of the number of underlying stock) on futures and option contracts on a particular underlying stock is lower of-

• 30 times the average number of shares traded daily, during the previous calendar month, in the relevant underlying security in the underlying segment, Or
• 20% of the number of shares held by non-promoters in the relevant underlying security i.e. free-float in terms of the number of shares of a company.

This limit is applicable on all open positions in all futures and options contracts on a particular underlying stock.

At the end of each day the Exchange disseminates the aggregate open interest across all Exchanges in F&O on individual scrips along with the market wide position limit for that scrip and tests whether the aggregate open interest for any scrip exceeds 95% of the market wide position limit (MWPL) for that scrip. If yes, the Exchange takes note of open positions of all client/ TMs as at the end of that day in that scrip, and from next day onwards the Stock enters into Ban Period. The client/TMs should trade only to decrease their positions through offsetting positions till the normal trading in the scrip is resumed. Please keep in mind that if a Stock enters into Ban period, then all its contracts i.e., all futures and options contracts of all months (near, next and far month) enter into Ban period. During the day, any stock may touch and cross 95% of the MWPL but the same is calculated and decided on EOD basis only.

The normal trading in the scrip is resumed only after the aggregate open interest across Exchanges comes down to 80% or below of the market wide position limit.

The Exchange specifies the market wide position limits (Stock wise MWPL) on the last trading day of the previous month through circular which is reckoned for this purpose during the next month. The EOD Data of the stock wise MWPL Position limit and the percentage is available on NSE Website.

(http://www.nseindia.com/products/content/derivatives/equities/sec_ban.htm)

What if a Stock enters into Ban Period?

If a stock enters into Ban Period, no fresh position in the F&O contract of the said stock is allowed. All clients/members are allowed to trade in the said stock only to decrease/close their position. The following situations can arise:

• If any client has open position in any stock and thereafter the stock enters into Ban Period, then the client should only reduce or square off the position.
• If any client has open position in any stock and thereafter the stock enters into Ban Period, the client is allowed to do roll over, i.e., selling current month and buying next month. In this case no fresh position is added. Similarly, if any client has a position in Stock Future and thereafter the stock enters into Ban period, then he can square off his existing position in futures and open a position in Option. For example, a client has a long position in Reliance Future and later Reliance enters into Ban Period. Hence, the client turns bearish on Reliance. So he can square off the long in Reliance Future and buy one put option of Reliance. Here no fresh position is created.
• If any client buys the current month contract of the stock already in Ban Period and sells the next month or vice versa, it will not be allowed since fresh position is being added.
• However, Intraday Square-off trade is allowed, since in that case no fresh position is added. Also, if on the expiry day, any client opens position in current month contract and leaves the position open, it will automatically be squared off at end of the day and there shall not be any fresh open position.

Penalty

At the end of each day during which the ban on fresh positions is in force for any scrip, when any member or client has increased his existing positions or has created a new position in that scrip the client/TMs shall be subject to a penalty 1% of the value of increased position subject to a minimum of Rs.5000 and maximum of Rs.1, 00,000. The positions, for this purpose, will be valued at the underlying close price. An example for the above is given in Annexure 1

The penalty shall be recovered from the clearing member affiliated with such trading members/clients on a T+1 day basis along with pay-in. The amount of penalty shall be informed to the clearing member at the end of the day.

Annexure 1: Illustration for computing positions for levy of penalty

In cases where the clients/TMs have reduced their positions during the period when the ban on fresh positions is in force for any scrip but subsequently increases the position during the ban period, the penalty shall be computed based on the value of increase in positions. The same is illustrated with an example:

	Open Positions
	Day 1	Day 2	Day 3
% of MWPL	95%	94%	91%
Client A	1000	1100	1080
Client B	900	850	875
Position on which penalty shall be levied on client A	–	100	80
Position on which penalty shall be levied on client B	–	0	25