What is Ban Security in F&O?

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What is Ban Security in F&O?

The stock market is full of different events that happen very frequently. The investors come across various terms and concepts every single day. Therefore, to survive long in the markets it is important to have the right set of knowledge of such terms. One term that is very common in the stock market is “Security Ban in F&O”. In this article, we shall understand what security ban is in future and options, and concepts related to it

Meaning of Security Ban

When the open interest of market wide position limit for a stock crosses 95%, the stock comes under the ban in the futures and options segment.  Moreover, the open interest is a combination of the entire future and options contract taken together for all the months.

Let us now see what happens in security ban.

What Happens in Security Ban

When a security enters in the ban, the only trade that the investors can take is to decrease their position. Furthermore, the investor can decrease his position by selling off his previous position. To put it another way, no new position in the security can be taken until it is in a ban. However, the traders may take intraday positions, as it does not have any effect on the open interest.

The important questions that cross our mind is when does the normal trading in securities in ban resumes?

When Normal Trading In Securities In Ban Resumes?

No trade other than a reduction in position of security can be initiated when the security is in a ban. The normal trading in stocks in ban resumes when the total open interest in all the exchanges comes down to 80% or below of the market wide position limit. To put in another way, when the open interest falls to 80% or below the securities comes out of ban and normal trading resumes.

One important term the investor must know in the context of securities ban is market wide position limit (MWPL). In this segment, we shall understand the meaning of market wide position limit (MWPL).

Meaning of Market Wide Position Limit (MWPL)

The market wide position limit is not applicable to index derivatives. Furthermore, the concept of market wide position limit applies only to the stocks that are under futures and options segment. The stock exchange releases the data for MWPL of every stock in the f&o segment on monthly basis. The representation of MWPL is in the form of number of shares and it is lower of;

  • 20% of the free float i.e. non-promoter holding in terms of the number of shares.
  • 30 times the average number of shares traded daily, of the previous month in the cash segment of the exchange.

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