On Wednesday, July 3rd, 2024, the National Stock Exchange (NSE) in India restricted trading in certain derivative contracts for two companies: India Cements and Indus Towers. This means these stocks cannot be bought or sold using futures and options (F&O)contracts on the NSE for the day.
The NSE implements a regulation known as the market-wide position limit (MWPL). This rule limits the total number of outstanding F&O contracts for a particular stock. It’s like a safety measure to prevent excessive speculation and volatility in the market.
If a stock’s open interest, which is the total number of outstanding F&O contracts, crosses 95% of the MWPL, the NSE can ban trading in those contracts. This is what happened with India Cements and Indus Towers. Their open interest got too high, so the NSE put a temporary stop on F&O trading for them.
Don’t worry, this ban only applies to F&O contracts. You can still buy and sell shares of India Cements and Indus Towers in the regular cash market on the NSE. The ban is just for the derivative contracts.
The ban is also temporary. Once the open interest for these stocks falls below 80% of the MWPL, trading in F&O contracts will resume. The NSE updates the F&O ban list daily, so you can check their website to see if the ban has been lifted.
Why Should You Care?
This news might be interesting for investors who trade using F&O contracts. If you hold such contracts for India Cements or Indus Towers, you won’t be able to buy or sell them today on the NSE. However, this is a temporary situation and shouldn’t impact your long-term investment plans in these companies.
Generally, an F&O ban can indicate high activity in a particular stock. This could be a sign of increased investor interest or speculation. It’s essential to thoroughly research before making any investment decisions.