New list for F&O space likely to have 35 new additions: Analysis

No change seen in Nifty, Sensex components

The new norms for stocks to be eligible for the derivatives segment may take the total count to 191 from the current 182, according to an analysis by the Securities and Exchange Board of India (Sebi).

The market regulator said in a note that the revision might lead to 26 exits and 35 new entrants in the futures and options (F&O) space while causing no change in the components of benchmark indices Nifty50 or Sensex on an immediate basis. 

Only those stocks can be selected to be in these indices that are eligible for F&O. The last revision in the F&O eligibility conditions took place in 2018 and the list has remained unchanged for the last two years.

Sebi's analysis was based on data till May. 

While Sebi’s decisions will become effective only after notification, the regulator had earlier said that the changes would be applicable after three months of the issue of the circular on the same.

In its last board meeting in June, the market regulator approved the revision of eligibility, introducing higher limits for the so-called market-wide position limit (MWPL), median quarter sigma order size (MQSOS), and average daily delivery value (ADDV) in the cash market. It also plans to introduce a ‘product success framework’ (PSF) for stock derivatives, similar to that for index derivatives.

The PSF for stock derivatives is to ensure sufficient turnover, open interest, and widespread participation from more brokers and a higher number of days.

In the consultation process, Sebi had received more comments against the move to implement PSF for single stocks with market participants requesting to dilute the proposal.

“The PSF criteria for stock derivatives is proposed because chances of manipulation in a stock, due to low liquidity of a stock in its derivatives segment, can be much higher than in index derivatives which are based on a basket of underlying,” said Sebi in favour of the move to apply PSF.

“The criterion for entry is based on the average values over a 6-month period and similarly, the criterion for exit is based on average values over a 3-month period. Therefore, any abrupt entry/exit of stock to/from the derivatives segment, based on short-term movement of the stock in the underlying market, is prevented,” it added.