SEBI Revises Criteria For Stock Inclusion And Removal In Derivatives Segment

The Securities and Exchange Board of India on Friday came up with several changes to its criteria for the inclusion and removal of stocks from the derivatives segment.

Under the revised rules, the median quarter sigma order size or MQSOS for stocks has been increased from Rs. 25 lakhs to Rs. 75 lakhs. MQSOS, a metric that measures a stock's liquidity, now requires a higher threshold, making it more difficult for stocks to be manipulated.

Additionally, the minimum market-wide position limit or MWPL, has been tripled from Rs. 500 crores to Rs. 1,500 crores, and the minimum average daily delivery value has been raised 3.5 times, from Rs. 10 crores to Rs. 35 crores.

Stocks that meet these revised criteria based on their performance in the cash market over a rolling six-month period will be eligible for entry into the derivatives segment. Conversely, stocks that fail to meet the criteria for three consecutive months will be removed from the derivatives segment, although existing contracts will remain valid until their expiry.

Once a stock is removed from the derivatives segment, it cannot be reintroduced for a year from the date it was last traded in this segment.

Additionally, SEBI is implementing a new "Product Success Framework" (PSF) for stock derivatives, similar to the one used for index derivatives.

The PSF too requires stocks to meet several criteria to stay in the derivatives market:

• Trading Activity: At least 15% of trading members or 200 members, whichever is lower, must trade in the stock's derivatives on average each month.

• Trading Days: The stock must be traded on at least 75% of the trading days during the review period.

• Turnover: The average daily turnover (combined futures and options premium) must be at least Rs. 75 crores.

• Open Interest: The average daily notional open interest (combined futures and options) must be at least Rs. 500 crores.

For stocks that have been in the derivatives market for less than six months, the new PSF criteria will apply after six months from the date of the rule's implementation. If these stocks fail to meet the PSF requirements for the following three months, they will be removed from the derivatives segment.

All other provisions from SEBI's Master Circular dated October 16, 2023, will continue to apply alongside these new timelines.

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