First time, I am witnessing 19 stocks which are in F&O Ban. What could be possible reason for it. Does it mean that traders have shifted from index options to stock options?
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Hi @Aditya_Gupta,
Whenever the open interest of a perticular stock exceeds 95% of their market-wide position limits, then the F&O contracts for that stock go into a ban period. This is done by the regulatory authorities to control the manipulative activity and volatility.
whats market wide position limit
Maximum permitted open interest for that stock in the market
MWPL is the maximum number of open F&O contracts permitted for a particular underlying stock. This limit is set by the exchange. To learn more, please refer to this link
but very basically what is MWPL? i.e why exchange needs to impose it?
there may not have been MWPL when the f&o was introduced initialy. When it came into existence and whats the fundamental reason?
is there similar rule on MWPL limits in US exchanges? because they allow short selling for years together even if the short-seller doesnt have the underlying in hand as per my understanding.
So that people can’t short more than the actual number of the stock available in the market.
It happens in the US. During the Gamestop saga, the open shorts were at 140% of available quantity in market. Means the same underlying was used to short more than once.
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MWPL is expressed in number of shares, it is lower of
- 30 times average number of shares traded daily,during the previous calendar month,in the cash segment.
- 20% of number of shares held by non promoters i.e 20% of the free float,in terms of number of shares of company.
Because it is required to contain excessive speculation and logically also one can’t short/sell more than available free float number.
Yeah, they don’t have any limit which is really bad and many times we have seen short squeeze happening and creating unnecessary panic in the markets as it can easily becaome major structural risk.
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