Settlement fund copes with all-time high F&O turnover

Tags: News
On the back of a sharp upward roll in the trading turnover in its equity futures and options (F&O) segment, the National Stock Exchange has boosted the settlement guarantee fund (SGF) for the segment. This has led the SGF level to reach an all-time high similar to the all-time high turnover during the current month.

The rise in SGF has taken place in the latest two months for which Sebi data on settlement statistics for stock exchanges is available. SGF serves as a protection against settlement defaults since the stock exchange can use the funds under it to clear the settlement dues of any defaulting clearing or trading member on the settlement date. Recovery and penal action against defaulters by the exchange follows thereafter.

From Rs 25,400 crore at the end of March, NSE's equity F&O SGF rose Rs 1,600 crore, or 6.3 per cent to Rs 27,000 crore at the end of April. The next month is when the SGF was seen soaring to Rs 34,343 crore, recording a 27.4 per cent month-on-month growth. In June, the SGF level outdid the record high month-end SGF level of Rs 34,460 crore of September 2010.

Such an intensity in the rise of SGF is not surprising, given the corresponding intensity seen in the jump of trading turnover.

In March, the average daily turnover in NSE’s equity F&O segment was Rs 1,58,400 crore. After a decline to Rs 1,50,600 crore in April, the average turnover flared up by 28-38 per cent in May and June when it hit Rs 1,93,900 crore and Rs 2,08,000 crore respectively. The current month has, till the 28th, seen NSE’s equity F&O segment log an average daily turnover of Rs 2,05,000 crore.

The Sebi data concerning stock exchanges' SGF in equity F&O is available from April 2010 onwards, while the prior period SGF data clubbed brokers' collateral along with SGF. In the financial year 2010-11 (FY11), the average month-end SGF in NSE's equity F&O segment was Rs 31,780 crore. The next year, FY12, saw the average drop a little to Rs 27,680 crore. In the next two years of FY13 and FY14, the average SGF levels declined further to Rs 26,510 crore and Rs 25,220 crore respectively. In the first quarter of the current year, FY15, the average month-end SGF level has touched a record high of Rs 32,240 crore.

The month-end SGF to monthly average daily turnover ratio on the NSE has been hovering between 17 and 18 per cent in the first quarter of FY15. This ratio is much lower on the Bombay Stock Exchange where in the April-June quarter it has fluctuated between a mere 0.3 per cent (June) and a small level of 2.5 per cent (May). The quarterly average SGF in BSE's equity F&O for April-June was Rs 338 crore while the average daily turnover was Rs 46,260 crore.

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