The eligibility criteria for stocks to qualify for the futures and options (F&O) segment has been made stricter by the Securities and Exchange Board of India (Sebi). The capital market regulator wants stocks with more liquidity to be a part of the derivatives family. Another driving motive was to ensure that it is traded by a large number of market participants so that price manipulation becomes impossible.
High quality stocks
The market regulator mentioned in a circular on August 30, “Given the need to ensure that only high quality stocks with sufficient market depth are allowed to trade in derivatives segment and considering the growth witnessed in market parameters since the last review conducted in 2018, the eligibility criteria for entry and exit of stocks in derivatives segment has been revised.”
Average daily delivery in focus
The stock’s average daily delivery value in the cash market in the past 6 months on a rolling basis should at least Rs 35 crore. Sebi has trebled the median quarter sigma order size in the preceding 6 months, on a rolling basis, from the current level of Rs 25 lakh to Rs 75 lakh. The logic: the average market turnover has risen 3.5 times since the time that last review was done. This is a significant parameter.
Marketwide position limit trebled
Another revision was a share’s marketwide position limit over the preceding 6 months from the current Rs 500 crore to three times the amount – to Rs 1,500 crore.
Those stocks that meet the eligibility benchmarks in the cash market of one exchange will be approved to trade in the derivatives segment of all stock exchanges.
The market regulator has also said that stock exchanges should settle derivative contracts at a price calculated by the clearing corporations based on volume-weighted average price across all exchanges.
Surveillance concerns flagged
Sebi has also said that if there are any surveillance concerns or continuing investigations against any stock, the market regulator will take all that into consideration while deciding whether a stock can find a place in the derivatives family. If a stock is unable to satisfy any of these stipulation for an unbroken period of 3 months on a rolling basis based on the data for previous 6 months, it will be excluded from the derivatives segment.
The capital market regulator Sebi has finally announced revisions of norms for the qualification and disqualification of stocks into the derivatives segment. Markets Business News – Personal Finance News, Share Market News, BSE/NSE News, Stock Exchange News Today
