Sebi: Sebi revises criteria for entry, exit of stocks in F&O segment

The regulator wants stocks that are part of the derivatives market to be more liquid and traded by a wide set of market participants to prevent manipulation and lower risks to the system.

“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,” Sebi said in a circular on Friday.

The regulator has increased the median quarter sigma order size (MQSOS) – a key parameter for inclusion of stocks into F&O – over the previous six months on a rolling basis by three times to ₹75 lakh from the existing ₹25 lakh, citing that the average market turnover is now over 3.5 times the figure during the last review. MQSOS criteria would need to increase between 3-4 times, Sebi said.

It also revised a stock’s market-wide position limit (MWPL) over the previous six months to ₹1,500 crore from the existing limit of ₹500 crore. The change comes in the wake of market capitalisation now standing at 2.8 times since the last review.

Agencies

The regulator also said a stock’s average daily delivery value (ADDV) in the cash market over the previous six months on a rolling basis should not be less than ₹35 crore. The existing criteria is ₹10 crore.Stocks which meet the eligibility criteria in the underlying cash market of any stock exchange would be permitted to trade in equity derivatives segment of all stock exchanges. The stock exchanges should settle the derivative contracts at a price calculated by the clearing corporations based on volume weighted average price (VWAP) from the cash segment across all exchanges, Sebi said. The regulator said, any surveillance concerns, ongoing investigations, or other administrative considerations would be taken into account by Sebi while considering a stock for introduction into the derivatives segment.

If a stock in derivatives segment fails to meet any of these criteria, for a continuous period of three months, on a rolling basis, based on the data for previous six months, then it shall exit from derivatives segment. No new contract should be issued on stocks that may exit the derivatives segment, Sebi said.