NSE to introduce cross margining facility from Friday to increase liquidity

The National Stock Exchange (NSE) on Tuesday said it will introduce cross-margining facility to offset positions in corelated equity indices from Friday, a move that will increase liquidity and trading volumes in stock markets.

Cross margining allows market participants to reduce the total margin payment required, if they are taking two mutually offsetting positions. The move helps market participants transfer excess margin from one account to another.

The facility will be made effective from January 10, 2020, NSE said in a circular.

The move comes after the markets regulator Sebi in November last year extended cross margining facility to offsetting positions in highly corelated equity indices.

Sebi, in December 2008, allowed cross margining across cash and exchange-traded equity derivatives segments.

Under the norms, cross margin benefit will be provided on offsetting positions in futures on equity indices pairs if at least 80 per cent of constituents of one of the indices is present in the other index and constituents of smaller index based on free-float market capitalisation need to have at least 80 per cent weightage in the larger index.

For cross margining benefit to continue, clearing corporations will have to check the eligibility criteria on a monthly basis on the 15th of every month and on the day of change in the constituents of the equity indices.