Market wide limit

Can anyone please explain what is market wide limit…

Market Wide Position Limit (MWPL) is the maximum number of open positions allowed in all the F&O contracts combined of an underlying stock. It is applicable only for stock derivatives and not index derivatives.
It is calculated as:

  1. lower of 30 times the average number of shares traded daily during the previous calendar month, or
  2. lower of 20% of the free-float holding( free-float shares are those that are readily available in the market for trading and not held by promoters).

For ex, if the free-float holding of a company is 1000 shares, then the MWPL is 20% of the free-float holding which is 200 shares.

Ban period for F&O contracts:
If the total number of open F&O contracts in a stock(open interest) exceeds 95% of the MWPL, then the contracts go into a ban period. No new positions should be added to the exceeded open interest, the broker will be penalized by the exchange if new positions are added in his account. Clients/ Brokers should trade only to decrease their positions through offsetting positions till the normal trading in the scrip is resumed.
The normal trading in the scrip is resumed only after the open interest comes down to 80% or below of the market wide position limit.

Taking the above example where the MWPL is 200, the total number of F&O contracts in a stock should not exceed 190(95% of MWPL). If it does exceed, the stock goes into a ban period and normal trading is resumed in these contracts only when the MWPL goes below 160(80% or below of MWPL).