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Ban Period - Concept and implementation
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What is open interest?
 
Open Interest is defined as total no of outstanding derivative contract (all positions in options and future contract for all expiries taken together – At any given point only 3 month expiry are open – Current month, next month and far month) that has not been settled.
For e.g., whenever we buy a future or option contract, there need to be a seller. The buys buy the contract with the view of contract price would go up and he will earn profit, same as seller with the view of contract prices would go down and he sell at high and offset his positions at low and earn profit. When a trade happens between the buyer & the seller, there’s one ‘Open Contract ‘that comes into being and the quantity of these open contracts is referred to as ‘Open Interest‘. Thus Open Interest is the total number of outstanding contracts that are held by market participants at the end of the day. Open interest applies only to the futures/options segment.
 
What is Market wide position limit?
 
At the end of each day the Exchange disseminates the aggregate open interest across all Exchanges in the futures and options on individual scrips along with the market wide position limit for that scrip and tests whether the aggregate open interest for any scrip exceeds 95% of the market wide position limit for that scrip. If yes, the Exchange takes note of open positions of all client/ TMs as at the end of that day in that scrip, and from next day onwards the client/ TMs should trade only to decrease their positions through offsetting positions till the normal trading in the scrip is resumed.
 
 The normal trading in the scrip is resumed only after the aggregate open interest across Exchanges comes down to 80% or below of the market wide position limit.
 
A facility is available on the trading system to display an alert once the open interest on the NSE in the futures and options contract in a security exceeds 60% of the market wide position limit specified for such security. Such alerts are presently displayed at time intervals of 10 minutes.
 
Ban Period
 
A stock is in Ban period when its open derivative contracts breach 95% of the market wide positions limit. In other words, when combined open interest in all positions in options and future contract for all the month taken together crosses 95% of market wide limit. Once stock is in Ban period, trade is only allowed to decrease the positions, basically no fresh positions are allowed or we can say no new contract are allowed. Any increase in fresh positions fine a penalty of Rs 5000 per contract or as designated by the broker. The stock comes out of the Ban period and trading resumes only AFTER the script market wide position limit decreased below 80%.
Please note that this is applicable only for F&O and does not apply to the cash segment. We are allowed to increase (or decrease) positions in cash market as necessary.
 
Rollover: Rollover is when you exit from the currently held F&O contract and take similar positions in the next month contract. We do rollover only when our view on contract we’ve held remain same but the already contract is going to expire. Once we are rolling our positions we used to reduce our current month position thereby reducing the Open interest and taking same positions thereby adding the same amount of Open interest in next month contract. So there is no change in the total open interest of the of that contract by allowing us to rollover without any concerns.
 
Firstly, when a contract is in ban period, all months of F&O will be in ban that means you can’t add positions on any F&O contract of any month (present, near or far) on that particular security. But yes, if a security is in Ban period, and you have a future position for month of March, you can’t roll it over to April like the way you do normally. That is you can exit the present month, but when you are trying to enter the next month, the trading platform will not let you enter, showing an error saying security is in Ban period and no fresh position is allowed.
In such a case, you will have to call the broker and let him know that you have to rollover the existing position and in net are not going to be adding any new positions, and the broker will take this as an exception after looking at your open position, and manually enable your account to be able to take fresh positions in this security.
 
To cite an example:
Assume you are long in one lot of Reliance Industries April 18 Futures. The maximum number of contracts allowed to be traded on Reliance Industries [all expiries] set by the exchange is 50,000 contracts.  Assuming there are 47500 [95% of 50,000] open contracts of Reliance Industries Futures, the exchange puts Reliance Industries under ban.
Now if you'd like to rollover, you'd be squaring off your position in Reliance Industries thereby closing 1 'Open position' which reduces the open interest to 47499 and by buying 1 lot of Reliance Industries May 18 Futures you'd be adding 1 open interest making the total number of Open contracts to 47500. Note that you having done this trade do not change the total Open interest.
 You could do a rollover by simply squaring off your position in the current month contract and taking a fresh position in the next month contract. Some brokerages in India automatically identify your rollover and allow you to take fresh positions for a security in ban while in some cases you may have to call your broker asking him to let you rollover a position.

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