The National Stock Exchange (NSE) has introduced changes that significantly impact Futures and Options (F&O) traders and intraday cash players. This blog will discuss the new circular, its potential impact on retail players, and the upcoming rule changes. These decisions follow SEBI's numerous changes in the F&O segment to reduce risks for retail investors.
Understanding the New Scenario
Regular traders are likely familiar with the concept of pledging. Traders could pledge bought stocks to obtain collaterals for F&O or intraday trades, allowing them to use borrowed money while their investments generated profit. Currently, the market has an open collateral value of INR 73,500 crore, primarily involving retail traders, prompting the NSE's decision.
Key Points of the Circular
- Reduction in Eligible Stocks for Pledging**: The list of stocks eligible for pledging has been significantly reduced, limiting traders' ability to use pledged stocks as collateral for F&O or intraday trades. Out of 1,730 eligible securities, 1,010 stocks have been removed.
- Framework for Existing Pledged Stocks**: The NSE has prepared a framework to help traders liquidate their existing pledged stocks over time, allowing for adjustment to the new rules without sudden disruptions. The remaining 720 stocks must have been traded on 99% of the days in the past six months to remain eligible for collateral.
- Removal of Stocks: Stocks that do not meet the new criteria will be removed from the collateral list effective August 1.
- Clarification on Excluded Stocks: The exclusion of certain stocks from the pledging list is not based on the financial health of the companies. Investors are advised to conduct their own research or consult financial advisors before making any buy or sell decisions.
The Impact on Retail Traders
The NSE's decision will have a notable negative impact on retail traders. The restriction on using favourite shares for extra margins will limit their trading strategies. While the goal is to reduce losses in the F&O segment, the immediate consequence is a negative impact on retail traders.
