The Hindu Business Line : FIIs can submit collateral for derivatives

He said that "FIIs are to be permitted to submit appropriate collateral, in cash or otherwise" when trading in domestic derivatives. According to market players, this will bring about flexibility and encourage FIIs to take greater exposure through the derivatives contracts.

Local players already had the flexibility of submitting collaterals, such as bank guarantee or shares or deposit receipt, in place of cash or along with cash, for meeting their margin obligations. According to Mr Ajit Day of Dayco Securities, the proposal will ensure equal treatment for FIIs and domestic players in derivatives trading.

SEBI will make a suitable announcement shortly to this effect, the Finance Minister suggested in his Budget speech.

Mr Mathew Easow of matheweasow.com felt that the positive impact would be increase in trading volumes in derivatives.

Ms Deena Mehta of Asit C Mehta Investment Intermediates felt that the move is positive for FII fund flow into derivatives.

According to Mr Gul Tekchandani, an investment strategist, the move will technically help FIIs take greater positions in the derivatives, and arbitrage margins (between spot and derivatives) would come down. "This in turn would bring down the overall cost of carrying the trades," he added.

The overall benefit for the market would be higher liquidity and greater turnover in derivatives, traders observed.

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