The Securities and Exchange Board of India (SEBI) released stricter rules on Thursday (June 27, 2024) for the inclusion and removal of individual stocks in the derivatives market.

Also, SEBI has established an expert group to examine the Futures & Options (F&O) segment.

SEBI Chairperson Madhabi Puri Buch highlighted that this committee will focus on market development, investor protection, and risk parameters.

“With a view to ensuring the continued development of a vibrant securities market ecosystem with appropriate regulation and investor protection, the Board has approved a revision in eligibility criteria for entry and exit of stocks in the derivatives segment of exchanges. The last revision in such selection criteria was carried out in  2018. The revised criteria are in line with the changed market context since 2018,” said SEBI in a press release.

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The move aims to remove stocks with consistently low turnover from the Futures & Options (F&O) segment of the stock exchanges.

The review took into account significant growth in market parameters, such as market capitalization and turnover, which reflect the size and liquidity of the cash market. The last review of the eligibility criteria for introducing stocks into the derivatives segment was conducted in 2018.

Sebi declared that the eligibility criteria for the entry or exit of stocks should be based on their performance in the underlying cash market.

Also, SEBI highlighted that stocks should continue to be selected from among the top 500 stocks in terms of average daily market capitalization and average daily traded value on a rolling basis.

Additionally, the stock’s market-wide position limit must be at least Rs 1,500 crore. The stock’s Median Quarter-Sigma Order Size over the past six months should be Rs 75 lakh, an increase from the current Rs 25 lakh.

The stock’s minimum average daily delivery value in the cash market over the past six months should be Rs 35 crore, up from the current requirement of Rs 10 crore.

To determine whether a stock should exit the derivatives segment, SEBI mentioned that at least 15 percent of active traders or 200 members, whichever is lower, should have traded in the stock under review.

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Additionally, the average daily turnover should be at least Rs 75 crore, and the average daily notional open interest (futures plus options) should be at least Rs 500 crore for that particular stock.

The exit criteria should only be applied to stocks that have been in the derivatives sector for at least six months.

Additionally, for stocks already in the derivatives segment, the performance-based exit criteria will take effect three months after the circular’s issuance.

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Disclaimer: The above content is for informational purposes only. Please consult a SEBI-registered investment advisor before investing.