On 28 October 2021, National Stock Exchange banned four stocks from futures and options trading as they crossed 95% of the market-wide position limit. Here is its full story considering the same.
National Stock Exchange banned four of the following securities on Thursday:
- Sun TV
- National Mineral Development Corporation (NMDC)
- Indiabulls Housing Finance
- Canara Bank
NSE has put these four stocks on a ban for trade in futures and options. The reason being they have crossed 95% of a market-wide position limit.
However, India’s National Stock Exchange lifted these three securities out of the ban on Thursday:
- Indian Energy Exchange (IEX)
- PSU metal stock
- SAIL (Steel Authority of India)
NSE warned that there would be penalties if anyone traded in these stocks except to decrease their positions by offsetting. NSE restricts the futures and options trading to market-wide position limit (MWPL).
Moreover, no new positions are allowed for any futures and options securities under the futures & options ban.
What is a Market-Wide Position Limit?
The National Stock Exchange or any other bourse sets the market-wide position limit. It is a limit that denotes the maximum number of contracts that can be opened at any time. These are also referred to as Open Interest. If the open interest of any stock crosses 95% of the MWPL (market-wide position limit), it qualifies for banning.
Therefore, investors should weigh out their options carefully with these four stocks banned from the futures and options trading until the next session. Moreover, NSE lifted three stocks from the ban. Hence one can consider them for futures trading.
Frequently Asked Questions
- When is trading allowed again after F&O ban?
Ans. After the ban, NSE allows trading in futures and options again only to decrease the positions. Regular trading is permitted after the aggregate open interest comes down to 80% or below the market-wide position limit.
- How do I calculate the market-wide position limit?
Ans. You can calculate the market-wide position limit on 20% of the non-promoter holding in the stock. It includes the positions taken in futures and options. Finally, the outstanding positions in that security should not exceed 95% of the limit.
- Is the Futures and Options ban good or bad?
Ans. For speculators who have taken long positions, the ban is bad news. Since traders are only allowed to liquidate and not take any new positions, it spells bad news for speculators.