Just before the F&O pre-open session was to begin, the National Stock Exchange (NSE) issued a circular informing brokers that client margins would be blocked before trades are executed during the 9:00–9:08 am window. This is very different from the transaction rules for the normal market hours of 9:15 am–3:30 pm.
In normal trading, a trade is executed first and then the margin is blocked. But NSE informed brokers late Friday that this rule would be reversed for the F&O pre-open, which one discount broker described as a “bolt out of the blue.”
The broker said on the condition of anonymity that the NSE introduced the new rule to prevent traders from taking large positions during the pre-open session with an intent to disrupt the market equilibrium. However, this broker emphasized that the exchange should relax this requirement for traders who are simply squaring off or closing an existing position during the pre-open, since that would not create any new risk.
For example, those with outstanding buy or sell positions in Nifty futures from Friday should be allowed to reverse the position in the pre-open without having to pay fresh margin, the broker said.
“This (margin) rule could apply for those initiating a fresh position during pre-open. Those merely squaring off should not need to have the margins blocked. We are in touch with NSE on this, but since it’s the first day, probably their systems will need some time to be tweaked,” the broker explained.
Kamlesh Shroff, managing director, Omniscient Securities said, “We may be taking up this matter (for giving the benefit of margin benefit to traders with open positions) with the exchanges…specifically margin offsets for existing positions should be considered by broker associations .”
Shroff added that it shouldn’t be a big issue as the margin is blocked only for about 10 minutes, but the margin block may briefly pinch capital efficiency at the broker level during the pre-open. The margin pinch is limited but still present, he added.
Another broker said that the NSE could have intimated brokers of this margin rule earlier than doing so at the last minute. The new rule would affect smaller brokers who don’t have big margins with clearing corporations like NSE’s NCL. Clearing corporations stand guarantee to counterparty default risks, thanks to margins kept with them by brokers who trade on the exchanges.
“The exchange could have informed participants earlier about this rule. While big brokers have decent margins kept with the clearing corporations, smaller brokers would face a problem here,” this broker said, requesting not to be named.
NSE did not respond to Mint’s queries.
Mehul Kothari, deputy vice-president—technical research, Anand Rathi Share and Stock Brokers Ltd, added that impact is uneven. “Small brokers are more affected due to retail-heavy clients, tighter capital buffers, and weaker tech infrastructure. Large brokers handle this better due to stronger risk systems and institutional client bases,” Kothari said.
The pre-open session was started to absorb the price-sensitive information and curb volatility before the start of regular trading hours. NSE and BSE conduct a pre-open session which lasts for 15 minutes for its cash market. This is primarily done to reduce volatility from any overnight news flow before the market opens.
Gautam Kalia, head—investment solutions and distribution at Mirae Asset Sharekhan, said: “Volatility spikes in the first few minutes are expected to reduce because of the pre-open session for derivatives as aggressive overnight flows interact in the auction rather than through impact-heavy market orders at 9:15.”
Kalia added that a structured auction with price bands and standard F&O (futures and options) parameters lower the chance of freak trades and misprints at the opening tick, improving operational and price-risk control.
The BSE on the other hand could not take orders in the pre-open for index and stock futures due to a technical issue, a person in the know said.
However, in response to Mint‘s queries, BSE said that the pre-open session for equity and equity derivatives was normal.
During the continuous trading session, a few equity derivatives contracts faced a session broadcast message issue, preventing members from placing orders. The issue was quickly identified, diagnosed, and resolved.
Other contracts and segments were working normally, BSE added.
