2 min read.Updated: 30 Jan 2021, 10:15 AM IST Edited By Sanchari Ghosh
Indian regulations are far more stringent, well designed, and keep investors’ interest as a priority
In India, we have a position limit of 20% of free float both in F&O and SLB. This ensures that the chances of anomalies that can cause crazy spikes up or down are reduced significantly
With all the craziness going on in the US capital markets regarding GameStop, AMC entertainment etc, Nithin Kamath, Zerodha CEO, decodes short squeeze in Indian markets and says: We have a habit of looking west and thinking what they do must be right. Hence, I thought it will be a good time to share some of the reasons why India is way better in terms of capital market regulations.
Amidst all the noises, Kamath on Friday posted a series of tweets explaining why Indian capital markets are far better regulated.
Posting a blog, he tweeted on Friday: In India, we have a position limit of 20% of free float both in F&O and SLB. Max OI per client: 1% of float. This restriction, unlike US where there is none, ensures that short squeeze of epic proportions that we are seeing in $GME, $AMC can't happen here.
While in another tweet he wrote, the US regulator has no restriction in terms of how large short positions can get on a stock (140% of free float in $GME Exploding head). In India 20% of free float is the maximum speculative position that can be built using F&O or SLB.
In the blog post, he further wrote, "Indian regulations are far more stringent, well designed, and keep investors’ interest as a priority compared to the US’s capital market regulations. This is also because of fewer legacy issues compared to the US markets. Another reason for lax regulations in the US is the existence of powerful lobbies."
SEC says it’s examining market mania
The U.S. Securities and Exchange Commission, facing intense pressure to respond to the recent mania in the stock market, said it’s seeking to identify potential misconduct and will scrutinize brokerages’ decisions to halt buying that triggered a retail-investor revolt.
The SEC warned traders about engaging in illegal schemes to drive up share prices and said it was working with other regulators, stock exchanges and federal agencies to “identify and pursue potential wrongdoing," according to a statement released Friday by acting chair Allison Herren Lee and the agency’s commissioners.
The SEC leadership added that the agency “will closely review actions taken by regulated entities that may disadvantage investors or otherwise unduly inhibit their ability to trade certain securities."
The remarks were the most aggressive yet from Wall Street’s top regulator following a week-long frenzy that has seen small-time investors harness social media to drive up GameStop Corp., AMC Entertainment Holdings Inc. and other stocks, hedge funds get crushed by their short bets, and Robinhood Markets and other brokerages restrict trading in the inflated securities.
By Friday, restrictions had been lifted and the massive rally in GameStop and others was back on. The stock advanced 68% to $325 in New York trading.
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