Sebi Tightens Derivative Trading Norms

New Delhi, Jun 27 (PTI) Capital markets regulator Sebi on Thursday approved stricter norms for the entry and exit of individual stocks in the derivatives segment and set up an expert group to look into the Futures & Option (F&O) category.

The committee will look into the three dimensions -- market development, investor protection and risk parameters, Sebi chief Madhabi Puri Buch told reporters here after the board meeting.

An expert group has been constituted to look into the F&O segment, and the committee will submit the report to the secondary market advisory committee, she added.

"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 the entry and exit of stocks in the derivative segment of the exchanges," the regulator said.

The move would weed out stocks with consistently low turnover from the Futures & Option (F&O) segment of the bourses.

The review was done considering remarkable growth in market parameters, reflecting the size and liquidity of the cash market like market capitalisation and turnover. The last review of the eligibility criteria for the introduction of stocks in the derivatives segment was conducted in 2018.

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

It further said that stock should continue to be chosen from among the top 500 stocks in terms of average daily market capitalisation and average daily traded value on a rolling basis.

Further, the stock's market-wide position limit should not be less than Rs 1,500 crore. The stock's Median Quarter-Sigma Order Size over the last six months should be Rs 75 lakh against Rs 25 lakh at present.

The stock's minimum rolling average daily delivery value in the cash market in the previous six months should be Rs 35 crore. Currently, this is Rs 10 crore.

To evaluate the exit of a stock from the derivative segment, Sebi said that at least 15 per cent of active traders or 200 members, whichever is low, should have traded in the stock on the stock being reviewed, average daily turnover should be at least Rs 75 crore and average daily notional open interest (futures + options notional) should be at least Rs 500 crore of that particular stock.

The criteria for exit should apply to only those stocks, which have completed at least 6 months from the month of entry into the derivative segment. Further, for existing stocks in the derivatives segment, the exit criteria on the basis of performance would be applicable 3 months after the date of issuance of the circular.