SEBI to tweak selection criteria for
F&O stocks
SEBI plans to change the selection criteria for
entry and exit of stocks in the derivatives market to reflect current market
conditions.
About two dozen of the 182 companies that are part
of the F&O segment could see an exit if the new rules are implemented,
according to Nuvama Alternative & Quantitative Research. These include
Abbott India, Bata, Berger Paints, Gujarat Gas, Ipca Labs, Torrent Pharma and
United Breweries.
Derivatives contracts can be traded only if the
underlying stocks meet certain criteria. Such criteria were last reviewed in
May 2018. Since then, index values of Sensex and Nifty have risen 110 per cent
whereas the daily average turnover in the cash market has surged 253 per cent.
Higher risks
The regulator's June 8 consultation paper flagged
higher risks of market manipulation and volatility without sufficient depth in
the underlying cash market and appropriate position limits around leveraged
derivatives.
There is a need to ensure that only high-quality
stocks in terms of size, liquidity, and market depth are available in the
derivatives segment. Stocks that have low derivative turnover, low open
interest, and narrower participation in the derivatives segment are vulnerable
to manipulation and expose investors to heightened risk, it said.
One of the eligibility criteria for inclusion and
exclusion is the stock's Median Quarter-Sigma Order Size over the last six
months, on a rolling basis. This figure may be raised 3-4 times from a minimum
of ₹25 lakh at present.
The minimum market wide position limit in the stock
on a rolling basis may be upped to ₹1,250-1,750 crore (from ₹500
crore now). The stock's minimum rolling average daily delivery value in the
cash market in the previous six months could be ₹30-40 crore (from
₹10 crore).
3-month period
If a stock fails to meet these criteria for three
months consecutively, it will exit the F&O segment and no new contract will
be issued on the stock.
The regulator proposes to extend its Product Success
Framework (PSF), applicable to index derivatives, to stock derivatives as well.
The said framework mandates that derivatives on an index should have sufficient
turnover, open interest, and widespread participation. No fresh contracts will
be issued on any index failing to meet any of these criteria. PSF will apply to
stocks that completed six months in the stock derivatives segment.
About 75 companies such as Zomato, Jio Financial,
Tata Elxsi, Delhivery, Adani Green, Adani Total Gas, Adani Transmission, JSW
Energy, Angel One, NBCC, SJVN, Oil India and BSE could potentially be included.
www.thehindubusinessline.com
dt. 10-06-2024