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Margin rules in derivatives should help cover risk, not control market exposure, says Crossseas Capital

Updated : June 14, 2019 02:26 PM IST

Rajesh Baheti, MD at Crosseas Capital Services, spoke to CNBC-TV18 about the increase in margin requirements for brokers in the derivatives markets.

"Over the last few years they have been constantly engaging with Sebi that the margining system that we have adopted may have been suitable to us 10-15 years ago when we did not have market history and that time there could have been over-cautious approach when futures and options got launched but now that we have a history behind us, margining essentially should be a tool to cover risk in any persons portfolio or exposure to the markets and should not be used as a tool to control the amount of exposure that the market takes,” Baheti said on Friday.

"Sebi levies three kinds of margins in India, while no other exchange in the world three components of margin separately of each other," he said.

When asked if margin requirements in India are higher because regulators don’t want too much of leverage, he said, “I would completely agree that if I am taking a position that entails a certain kind of risk, you must take that margin from me.”

“We are completely with Sebi when it says there should be adequate risk cover but it should be linked to risk and not exposure because when you do Options in the market it is not the linear payoff that I create, I can create multiple strategies using Options where I can have limited loss strategies” he said.
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