The Securities and Exchange Board of India (SEBI) has made significant changes to the entry and exit criteria for stocks in the derivatives segment (Futures & Options – F&O). On Friday, SEBI issued a circular outlining these changes, which aim to control liquidity and prevent market manipulation.
Key Changes in Criteria
Who Will Be In and Who Will Be Out?
According to Nuvama Research, due to the revised rules, 18 stocks, including Gujarat Gas, United Breweries, and Dr. Lal PathLabs, are expected to exit the derivatives segment. These changes are made to ensure that only liquid and stable stocks are included in the F&O segment.
Furthermore, nearly 80 companies, including Zomato and Jio Financial Services, are strong contenders for inclusion under the new rules. A brokerage note dated August 30 mentioned that these new criteria might also lead to two new names in the Nifty 50 index by 2025.
Stocks like IRFC, RVNL, NHPC, Mazagon Dock, Adani Total Gas, and JSW Infrastructure are among the 80 stocks that are likely to be part of this segment.
What Are the New SEBI Rules?
SEBI has increased the ‘Median Quarter Sigma Order Size’ (MQSOS) for a stock from ₹25 lakhs to ₹75 lakhs. MQSOS is a measure used to assess a stock’s liquidity. By raising this limit, it becomes more difficult to manipulate stocks.
Additionally, the minimum Market Wide Position Limit (MWPL) has been tripled from ₹500 crores to ₹1,500 crores. The minimum average daily delivery has also been raised 3.5 times, from ₹10 crores to ₹35 crores.
These rules mean that stocks that meet these revised criteria within six months will be eligible to enter the derivatives segment. Conversely, stocks that fail to meet these standards for three consecutive months will be removed from the segment. However, existing contracts will remain valid until their expiration.
Once a stock is removed from the derivatives segment, it cannot be reintroduced for a year from the last date it was traded in this segment. SEBI is also introducing a new ‘Product Success Framework’ (PSF) for stock derivatives, which is already used for index derivatives.
Criteria for Staying in the Derivatives Market
Under the new rules, stocks must meet several criteria to remain in the derivatives market:
1. Trading Activity: At least 15% of trading members or 200 members, whichever is lower, must trade the stock derivatives each month.
2. Trading Days: The stock must be traded on at least 75% of trading days during the review period.
3. Turnover: The average daily turnover (including both futures and options premium) must be at least ₹75 crores.
4. Open Interest: The average daily open interest must be at least ₹500 crores.
These new rules by SEBI are designed to ensure that only the most liquid and stable stocks remain in the F&O segment, thereby enhancing market efficiency and reducing the potential for manipulation.
Conclusion
SEBI’s revised entry and exit rules for the derivatives segment mark a significant step toward ensuring a more transparent and robust market. By raising the criteria for stock inclusion, SEBI aims to curb market manipulation and maintain liquidity. These changes will impact several companies, both exiting and entering the segment, and are expected to bring more stability to the Indian derivatives market.
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