Why do F&O contracts enter a ban period?

Why do F&O contracts enter a ban period?

Futures and Options (F&O) contracts of stock enter a ban period when the stock's open interest crosses 95% of the Market Wide Position Limits (MWPL). The purpose of this ban is to control excessive speculation and prevent potential market manipulation. Here's a concise explanation:

1.     Trigger for Ban Period: The ban period is triggered when the open interest in F&O contracts for a particular stock exceeds 95% of the MWPL.

2.     Objective: The primary aim is to curb excessive speculation and prevent price manipulation, ensuring orderly market conditions.

3.     During Ban Period:

o   Trading Restrictions: New positions for the banned stock cannot be created in the F&O segment. However, traders are allowed to reduce or square off existing positions.

o   Penalties: Violations of the ban, such as creating new positions, can result in fines imposed by the exchange.

4.     Exit from Ban Period: The stock exits the ban period when the open interest falls below 80% of the MWPL, allowing normal trading to resume in the F&O contracts.

This regulatory measure helps maintain market stability and protects the interests of investors by mitigating excessive speculative activities.


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