By The NSE on August 7 placed a ban on trading in eleven stocks within the futures and options segment. The ban comes as these stocks exceeded 95% of the market-wide position limit (MWPL), a critical threshold aimed at maintaining market stability and preventing excessive speculative trading.
The stocks affected by this ban include Aditya Birla Capital Ltd, Birlasoft Ltd, Chambal Fertilisers and Chemicals Ltd, GNFC, Granules India, Hindustan Copper, India Cements, IndiaMart, RBL Bank, LIC Housing Finance Ltd, and Manappuram Finance Ltd.
These stocks will remain tradable in the cash market, but the NSE’s decision has implications for traders and investors who rely on the F&O segment for hedging and speculative purposes.
The MWPL is a mechanism designed to prevent a single stock from being overly dominated by speculative positions. When the aggregate open interest in F&O contracts for a stock exceeds 95% of the MWPL, the exchange places that stock under a ban. This measure is intended to protect the market from excessive volatility and ensure that no single security’s derivative contracts become too concentrated.
According to the NSE, once a stock is placed under the F&O ban, traders are only allowed to reduce their existing positions through offsetting trades. Any attempt to create new positions is prohibited, and those who violate this rule may face penal and disciplinary action.
This restriction is part of a broader strategy by the NSE to maintain market integrity and protect investors from the potential risks associated with over-leveraged positions in volatile securities.
The ban on these eleven stocks has drawn attention from market participants, especially given the current volatile market conditions. On August 6, just a day before the ban was imposed, Indian stock markets experienced a sharp reversal of early gains, with the benchmark indices—the Sensex and Nifty—both closing lower.
The Sensex dropped 166 points, settling at 78,593.07, while the Nifty fell 63.05 points to close below the 24,000 level at 23,992.55. The declines were driven by late selling in banking and telecom stocks, highlighting the market’s sensitivity to sectoral pressures.
The broader market also mirrored this downward trend, with the BSE mid-cap and small-cap indices both registering losses of 0.71% and 0.57%, respectively. The volatility and the subsequent ban on F&O trading in the eleven stocks underscore the challenges facing traders in navigating an increasingly uncertain market environment.
For market participants, the NSE’s daily updates on the list of securities under F&O ban are closely watched. The inclusion of prominent companies like India Cements and RBL Bank in the ban list for August 7 is a reminder of the ongoing regulatory oversight in the Indian derivatives market. This oversight is critical in ensuring that speculative trading does not destabilize the broader financial system.
Despite the restrictions in the F&O segment, the affected stocks will continue to be available for trading in the cash market. This allows investors who are holding these stocks or looking to enter positions in them to do so without the added leverage that F&O trading provides. However, the ban is likely to dampen short-term speculative interest in these stocks, potentially leading to reduced liquidity in their derivative contracts.
The NSE’s decision to impose the ban also comes at a time when market sentiment is being shaped by a mix of global and domestic factors, including inflation concerns, monetary policy shifts, and sector-specific challenges. As traders and investors digest these developments, the focus will remain on how the market responds to the restrictions in place and whether these measures will effectively curtail the kind of speculative excesses that the MWPL mechanism is designed to prevent.
As always, the NSE will continue to monitor the market closely and update the F&O ban list daily, providing guidance to market participants on the status of individual stocks and ensuring that the broader market remains orderly and transparent.
