Sebi tightens rules for stocks in F&O segment

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The markets regulator Securities and Exchange Board of India (Sebi) has unveiled a set of stringent norms aimed at refining the selection process for individual stocks entering the derivatives segment.

The proposed regulations aim to filter out stocks with consistently low turnover from the Futures & Options (F&O) segment of the stock exchanges. Sebi emphasised the importance of maintaining depth in the underlying cash market and implementing appropriate position limits for leveraged derivatives to mitigate risks such as market manipulation, heightened volatility, and compromised investor protection.

Highlighting the necessity for Sebi to ensure the presence of only high-quality stocks in terms of size, liquidity, and market depth in the derivatives segment, the consultation paper underlined the need for a recalibration of existing market parameters to align with evolving market dynamics.

The review is prompted by a marked growth in market parameters reflecting the size and liquidity of the cash market, such as market capitalisation and turnover. The last review of eligibility criteria for introducing stocks in the derivatives segment was conducted in 2018.

Under the proposed framework, for individual stocks to be eligible for derivative trading, they must have traded on at least 75% of trading days. Additionally, a minimum of 15% of active traders or 200 members, whichever is lower, should have traded in the stock. The average daily turnover should range between Rs 500 crore and Rs 1,500 crore, with the average premium daily turnover being at least Rs 150 crore for inclusion.

Sebi also suggested revising the maximum number of open contracts allowed for the underlying stock to be between Rs 1,250 crore and Rs 1,750 crore, up from the current limit of Rs 500 crore.

These proposals aim to ensure stocks have adequate turnover, open interest, and broad participation. Sebi reiterated that stocks should continue to be selected from amongst the top 500 stocks based on average daily market capitalization and average daily traded value on a rolling basis.

Moreover, Sebi proposed that the Median Quarter-Sigma Order Size over the last six months for a stock should be between Rs 75 lakh and Rs 1 crore, increased from the current minimum of Rs 25 lakh. The stock’s minimum rolling average daily delivery value in the cash market over the previous six months should be between Rs 30 crore and Rs 40 crore, up from Rs 10 crore.

Under the proposed regulations, if a stock fails to meet the eligibility criteria for three consecutive months, it would be delisted from the derivatives segment, implying that no new contract would be issued on that stock.

Sebi has invited public comments on the proposal until June 19.

With inputs from PTI