Sebi approves stricter norms for inclusion of individual stocks for derivative trading
Sebi approves stricter norms for inclusion of individual stocks for derivative trading
Mumbai: The board of Sebi on Thursday approved a proposal to tighten rules on the inclusion of stocks in the futures and options(F&O) segment and approved introduction of fixed price for taking a company private.
The revision will lead to addition and deletion of about two dozen stocks.
"In order to ensure that there is a healthy linkage between the cash market and the F&O market many years ago we had brought in a regulation that there will be physical delivery of open positions on expiry, that was the first step we had taken in that direction. The second step that we are taking in that direction is now today, to say that the criteria of which stocks will be committed in the F&O basis the criteria of how their shares trade in the cash segment, we need to adjust those parameters because they were set in 2018 and obviously in the last 6 years the market has grown, volume has grown and size has grown, so those parameters that we had set are no longer appropriate.So, in line with the way market value and volume have grown, we have changed those parameters of eligibility to enter the F&O stocks," Sebi chief Madhabi Puri Buch said after the board meeting.
The criteria for exit would apply to only those stocks which have completed at least six months from the month of entry into the derivative segment. while for existing stocks in the derivatives segment, the exit criteria on the basis of performance would be applicable three months after the date of issuance of circular, Sebi said.
"The new sebi regulations on barriers for single stock entry may not have a significant price impact on the stocks moving out of the list as we have seen over the years. However, sentimentally, we have seen traders prefer stocks which are also traded in the derivatives segment to hedge their cash positions, and similarly, funds that hold the stocks which may move out may not prefer to trade them anymore, which may result in falling liquidity for these stocks," said Chandan Taparia, head of technical and derivatives research at Motilal Oswal Financial Services.
"The stocks that may move into F&O will see higher liquidity and may see some price appreciation along with higher volumes due to positive sentiment. However, 97-98% of total derivatives volume consists of trades in index options so single stock exit or entry may not impact the segment or investors in a big way," Taparia said.
The regulator has also introduced a product success framework in single stock futures and options to ensure that the liquidity and participation witnessed in the derivatives markets are supportive of market development and investor protection.
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