Sebi relaxes circuit filter limit

The risk management committee appointed by the Sebi, which met on Wednesday, discussed the issue and finally declared the relaxation in circuit filters which will be applicable from May 2 on 200 scrips, from the A and B1 groups. “These scrips will cover nearly 90 per cent of the market capitalisation,” Sebi chairman D R Mehta added.

While 100 scrips, based on transaction volumes, have already been selected by the BSE in consultation with the National Stock Exchange (NSE), the final list will be released on Thursday. “This time around, the stock exchanges would have to implement it. Last time the SEs had pleaded software incompatibility as the reason for non-implementation of the modified system,” said a Sebi official.

The present limit which allows only an eight per cent movement in any direction for shares priced above Rs 20 had come in for great criticism in a recent market slide. The activation of the limit before many shares could be traded prevented investors from exiting their positions and added to panic. The benchmark 30-share BSE Sensex had lost 26 per cent up to Monday from an all-time high of 6,150.69 in mid-February.

"Compared to other markets, I felt our market was less volatile and as a result of the eight per cent limit, our markets were also comparatively safer," Mehta said, adding, “But it was felt that some investors were perhaps not getting an exit route and so we have given some flexibility by relaxing the limit."

SEBI also decided said that in carry forward transactions, short sellers will not be allowed to receive a badla charge, unless they arrange for delivery. As part of the existing carry-forward mechanism (badla), which is effectively a unique kind of forward market in India, buyers who do not want to take delivery of shares have to pay a badla charge to the seller, even if the seller does not have shares for delivery.

Explaining the short removal of carry-forward charges payable to short sellers in naked short sales, SEBI officials said this was to bring those who buy long with those who sell short. Currently, in naked short sale transactions, the buyer going long does not have sufficient funds to take delivery while the short sellers cannot give delivery because he does not possess the securities. Normally, what has been happening so long is that in such scenario where there is no money coming in or going out, the transaction is carried forward with the long purchaser paying the badla charges to the short seller. Now it was decided that in such transactions, the short seller would either have to give delivery or forego the badla charge.