NSE limits F&O positions in RPL

The National Stock Exchange (NSE) has imposed a ban on fresh build-up of derivative contracts in Reliance Petroleum Ltd (RPL) after its futures and options (F&O) contracts crossed 95 per cent of the market-wide position (ie the number of shares available in the cash market).

RPL is the first stock from among the 50 constituents of the Nifty Index to be placed under the F&O ban.

Dealers said the popular basket trading on the 50 Nifty stocks by big brokerages and foreign funds would be hit following the F&O ban in RPL.

Under basket trading, big investors buy (or sell) all the 50 stocks in the NSE's Nifty index in the same weight as they are constituted in the index, even while they sell (or buy) the Nifty futures to gain from arbitrage opportunities.

Currently, this arbitrage game of selling stocks in the cash segment and buying the futures segment is not possible as short-selling in the cash segment is prohibited for institutional investors.

RPL was one of the top traded stocks in futures trading among the S&P CNX Nifty Index components.

The National Stock Exchange, in a circular, informed all its members that trades in derivative contracts of RPL can only be done to decrease their positions.

Said Savio Shettly, derivative analyst, Prabhudas Leeladhar, "It is likely that there would be unwinding of long positions in the counter as a consequence of the stocks been put under the ban period, which could result in the stock declining further."

Brokers said the derivative contracts in RPL crossed 95 per cent due to an excessive build-up of short positions in the counter on Monday and Tuesday.

Share prices of RPL, which was one of the major gainers in recent times, plunged by 17 per cent to Rs 220.35 on Tuesday. Today too the stock was marginally down by 0.73 percent to close at Rs 218.75. The counter touched an all-time high of Rs 295 on November 1 on the Bombay Stock Exchange.

NSE also put equity derivatives of SRF, Arvind Mills, Essar Oil and Adlabs under the F&O ban. However, these are not constituents of the Nifty 50.