Sebi tightens F&O eligibility criteria

Stock exchanges (SEs) will now have to follow stringent criteria for futures and option (F&O) securities. The Securities and Exchange Board of India (Sebi) has tightened eligibility and exit criteria for stocks in the derivatives segment. Stock brokers are of the view that it had become easy for operators to get their counters into the derivatives segment and rig up share price as trading interest is high there.

The regulator has raised the market wide position limit (MWPL), which is the total number of contracts a trader may have active at one time for a given underlying from Rs 100 crore to Rs 300 crore for inclusion in the derivatives segment. The MWPL is widely misused by operators for manipulation.

For instance, exchanges ban a stock from derivatives trading when its MWPL reaches 95 per cent of the total outstanding shares. Participants are allowed to trade only to unwind positions and new positions can be created only after the open interest (OI) falls below the 95 per cent mark. Thus, this was used by operators to keep the price of a counter at a certain level as they did not unwind their positions for long and frequently got scrips in the ban limit. At present, minimum MWPL requirement for a stock to be retained in the derivatives segment is Rs 60 crore, Sebi has raised it to Rs 200 crore.

Similarly, Sebi has raised the minimum order requirement for a stock to be eligible for introduction in the derivatives segment from Rs 5 lakh to Rs 10 lakh. At present, minimum order size requirement for a stock to be retained in the derivatives segment is Rs 2 lakh, Sebi has decided to revise it upward to Rs 5 lakh.

An additional criterion of 'stock derivatives for average monthly turnover in the derivatives segment for the last three months of Rs 100 crore' will also be implemented for a stock to be retained in the derivatives segment. These steps have been taken to improve the market integrity, Sebi said.