Sebi Tightens Rules: Only Top Stocks Allowed in Derivatives Trading

The Securities and Exchange Board of India (SEBI) has updated the criteria for stocks entering and exiting the derivatives Market. To qualify, stocks must now have a Median Quarter Sigma Order Size of at least Rs 75 lakh, increased from Rs 25 lakh, and a Market Wide Position Limit of Rs 1,500 crore, up from Rs 500 crore. The Average Daily Delivery Value requirement has also risen to Rs 35 crore from Rs 10 crore. Stocks not meeting these standards for three months will exit the derivatives segment. Additionally, SEBI has introduced a Product Success Framework where a minimum percentage of trading members must be active in derivatives contracts for a stock to be reviewed. This move aims to enhance Market quality and protect investors.

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Title: SEBI Updates Criteria for Derivatives Segment to Boost Market Quality

Date: August 30, 2024

The Securities and Exchange Board of India (SEBI) announced important changes on Friday regarding the entry and exit criteria for stocks in the derivatives segment. This decision aims to enhance the quality of stocks available for trading in this high-stakes Market.

Under the new rules, stocks must meet specific performance benchmarks based on their activity in the cash Market over the last six months. Notably, the Minimum Quarter Sigma Order Size (MQSOS) requirement has increased from Rs 25 lakh to Rs 75 lakh. Additionally, the Market Wide Position Limit (MWPL) has been raised from Rs 500 crore to Rs 1,500 crore, reflecting the growth in Market capitalisation.

SEBI also increased the Average Daily Delivery Value threshold from Rs 10 crore to Rs 35 crore, aligning with the significant rise in average daily trading volumes. Only stocks meeting these criteria in the cash markets will be allowed to trade in the derivatives segment across all stock exchanges.

To ensure ongoing quality, stocks that do not maintain these standards for three consecutive months will be withdrawn from the derivatives Market. Existing contracts on these stocks can still be traded until their expiration, but no new contracts will be permitted.

SEBI emphasized that the revised eligibility criteria are essential to guaranteeing that only stocks with sufficient Market depth are included. The regulator also mentioned the introduction of a product success framework for single-stock derivatives to promote active trading.

With these updates, SEBI aims to bolster price discovery and Market liquidity, while minimizing risks of Market manipulation and volatility. The changes come after a review of Market conditions since 2018, underlining SEBI’s commitment to investor protection and Market stability.

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1. What does SEBI’s revised eligibility criteria mean for stocks in the F&O segment?
   SEBI’s updated rules will change which stocks can be included or removed from the futures and options (F&O) segment. This will help ensure that only suitable stocks are traded.

2. Why is SEBI making these changes?
   SEBI wants to improve the safety and transparency of the stock Market. The new rules aim to make it more difficult for unsuitable stocks to enter the F&O segment.

3. How will this impact investors?
   Investors may see fewer stocks available in the F&O segment, but the stocks that remain may be more stable and reliable. This can help reduce risks when trading.

4. When will these new eligibility criteria take effect?
   SEBI has not specified an exact date, but it usually provides a timeline for changes like this to give investors and traders time to adjust.

5. Can certain stocks still get into the F&O segment if they don’t meet the new criteria?
   No, stocks must meet the new criteria to be included in the F&O segment. If they do not meet the requirements, they will be excluded from trading in futures and options.