The Securities and Exchange Board of India (SEBI) has issued a circular revising the eligibility criteria for entry and exit of stocks in the derivatives segment. The move aims to ensure that only high-quality stocks with sufficient market depth are allowed to trade in the derivatives segment.
Key Changes:
- Entry Criteria: SEBI has significantly increased the thresholds for stocks to enter the derivatives segment. Notable changes include:
- Median Quarter Sigma Order Size (MQSOS) increased from INR 25 lakhs to INR 75 lakhs.
- Market Wide Position Limit (MWPL) raised from INR 500 crores to INR 1,500 crores.
- Average Daily Delivery Value (ADDV) in the cash market increased from INR 10 crores to INR 35 crores.
- Exit Norms: Stocks failing to meet the revised criteria for three continuous months will exit the derivatives segment.
- Product Success Framework (PSF): A new framework has been introduced for stock derivatives, similar to the existing one for index derivatives. The PSF includes criteria such as:
- Minimum trading member participation
- Trading frequency
- Average daily turnover of at least INR 75 crores
- Average daily notional open interest of at least INR 500 crores
SEBI stated that these changes are in response to the significant growth in market parameters since the last review in 2018. The revised criteria aim to enhance price discovery, market liquidity, and investor protection while mitigating risks of market manipulation and excessive volatility.
The circular also outlines specific timelines and transition periods for implementing these changes. Existing stocks will have a three-month gestation period before the new exit criteria apply, while newly introduced stocks will have a six-month grace period.
Stock exchanges are directed to make necessary amendments to their bylaws and regulations to implement these changes. The new guidelines will be effective immediately from the date of issuance of the circular.
This regulatory update is expected to have a significant impact on the derivatives market, potentially leading to the exit of some stocks from the segment while raising the bar for new entrants.
