The Securities and Exchange Board of India (Sebi) on Friday tightened the eligibility criteria for stocks to enter the futures and options (F&O) segment. Among the eligibility criteria tweaked by the regulator are market-wide position limit, average daily delivery value in cash market, and median quarter sigma order size.
As per the new regulations, the market-wide position limit of stocks over the previous six months should not be less than Rs 1,500 crore for it to be eligible to enter the F&O market. Currently, this metric is at Rs 500 crore. Sebi said the change is in line with the increase in market capitalisation of India since the last review for eligibility criteria in 2018.
Similarly, SEBI also raised the required the minimum average daily delivery value of the stock in the cash market in the previous six months to Rs 35 crore from the current Rs 10 crore.
Apart from this, the regulator also raised the median quarter sigma order size of stocks over the previous six months to Rs 75 lakh from Rs 25 lakh. A stock’s quarter sigma order size refers to the order size that can trigger changes in the stock price equal to one-quarter of a standard deviation.
Sebi said the revision in entry/exit criteria is on account of the need to ensure that only high-quality stocks with sufficient market depth are allowed to trade in the derivatives segment. “Considering the growth witnessed in market parameters since the last review conducted in 2018, the eligibility criteria for entry/exit of stocks in derivatives segment has been revised,” it said.
SEBI is also in the process of tightening norms for trading in index derivatives amid a significant surge in trading volumes not complemented by a similar rise in cash market turnover.
Apart from these eligibility criteria, other factors such as surveillance concerns, ongoing investigations, or other administrative considerations shall be taken into account while considering a stock for introduction into derivatives segment.
The regulator said these changes will be effective immediately, and that the existing F&O stocks will have a gestation period of three months before applicability of the exit criteria.
If a stock in the derivatives segment fails to meet the required norms for a continuous period of three months, on a rolling basis, based on the data for the previous six months, then it shall exit from the derivatives segment, Sebi said.
“Once a stock is excluded from the derivatives segment, it shall not be considered for re-inclusion for a period of one year from its last trading day in the derivatives segment,” SEBI said.
SEBI has directed the stock exchanges to make amendments to the relevant bye-laws, rules and regulations for the implementation of the new norms.
