Stock exchanges await Sebi approval to add new stocks to F&O segment

Sources reveal that exchanges submitted a list featuring 40 net additions

Stock exchanges are awaiting approval from the Securities and Exchange Board of India (Sebi) to add new stocks to the futures and options (F&O) segment, according to sources.

The Sebi board cleared the new eligibility criteria for F&O stock selection at its meeting in June, and a detailed circular was issued on August 30.

Subsequently, the exchanges submitted a list of stocks eligible for inclusion in the F&O segment under the revised guidelines. However, the new list has yet to receive the necessary approval, the sources added.

The new changes may increase the total number of available stocks in F&O to around 220, with 40 net additions. Currently, 179 stocks are eligible for trading in the derivatives segment, where daily turnover exceeds Rs 500 trillion on a notional basis.

“The exchanges submitted the list as soon as the revised norms were established in August. Hopefully, it will be approved within two weeks,” said another source with direct knowledge.

Emailed queries to Sebi and the exchanges regarding timelines and approval remained unanswered until the time of going to press.

This development assumes significance, as no new stocks have been added to the F&O segment in over two years. This stagnation has prevented newly listed companies such as Zomato, Jio Financial, and Life Insurance Corporation of India from being included in the benchmark indices, where inclusion in the F&O segment is a prerequisite.

Sources indicated that Sebi is conducting a more thorough vetting of the stock list. “The new F&O list comes at a time when there is a hue and cry around retail losses in the derivatives segment. As a result, Sebi wants to closely scrutinise the list submitted by the exchanges,” said a source.

The previous revision of the F&O eligibility conditions occurred in 2018, and no new stocks have been added to the derivatives segment since January 2022.

The new framework aims to attract more liquid and high-quality names to the derivatives segment. To achieve this objective, Sebi has set higher thresholds for market-wide position limits, median quarter sigma order sizes, and average daily delivery values in the cash market.

The new criteria also specify timelines and processes for the inclusion, deletion, cancellation of contracts, or re-entry into the F&O.

A product success framework (PSF) for stock derivatives has been introduced, similar to that for index derivatives.

The PSF for stock derivatives aims to ensure sufficient turnover, open interest, and widespread participation from more brokers over a greater number of trading days. In its last board meeting in September, Sebi also implemented additional steps to strengthen the F&O segment for indices with six measures, which will limit participation from retail investors.

A recent study conducted by Sebi showed that the aggregate losses of 11.3 million individual traders exceeded Rs 1.8 trillion over the three years from 2021-22 to 2023-24 (FY24). In FY24 alone, individuals incurred roughly Rs 75,000 crore in net losses. The study revealed that 93 per cent of retail traders lost money on F&O trades in the past three years.

In Queue

- Currently, only 179 stocks are available for trading in F&O

- No new additions have been made in over two years

- Sebi issued revised eligibility norms for F&O stock selection in August

- The new norms will trigger major shifts and create space for new-age firms listed in the past few years

- Only stocks eligible for F&O are considered for inclusion in benchmarks