The Securities and Exchange Board of India (SEBI) has increased the requirements for the entry and exit of stocks in the derivatives segment. In a notification on Friday, the regulator announced raising the median quarter sigma order size (MQSOS) to Rs 75 lakh from the existing Rs 25 lakh, citing increased market turnover. MQSOS is a measurement of the average order size that can influence a stock’s price and is calculated based on the historical trading data.

Also Read: How To Effectively Plan For Healthcare Costs After Retirement?

Other Main Changes

The market regulator has increased the stock’s market-wide position limit (MWPL) to Rs 1,500 crore from Rs 500 crore, revised as the market capitalisation stood at 2.8 times the last review. MWPL is the maximum number of open positions that market participants are allowed to hold in F&O contracts for a specific security.  Additionally, Sebi has raised the stock’s average daily delivery value (ADDV) to Rs 35 crore from Rs 10 crore, in response to a 3-fold increase since the last review. It is now mandated that the stock’s ADDV in the cash market on a rolling basis over the previous six months should not be less than Rs 35 crore.

Sebi did not change the criteria related to the Average Daily Market Capitalisation and Average Daily Traded Value (ADTV) for the top 500 stocks.

To be eligible for entry to trade in the derivatives segment, stocks must meet specific performance criteria in the cash market for at least six months. Sebi said the eligibility criteria have been updated to ensure that only high-quality stocks with sufficient market depth can trade in the derivatives segment. This decision was influenced by the growth observed in the futures & options (F&O) markets since the last review in 2018.

Nuvama Institutional Equities said, “As our markets have evolved, the call for adding more F&O stocks with robust liquidity has grown louder, while the need to weed out underperforming names with poor liquidity has become increasingly apparent. Sebi can introduce new inclusions in the next few weeks/months. Around 80 stocks meet the criteria, but the final decision rests with Sebi. Exit criteria based on performance would apply three months after the circular’s issuance, with a review planned for December 2024 and subsequent exclusions.”

Zomato, JSW Infra, Jio Financial, Phoenix Mills, Rail Vikas, IREDA, Yes Bank and 50 other stocks can be considered for entry into the F&O segment, Nuvama Institutional Equities said.

Also Read: Retirement Planning: 5 Financial Mistakes To Avoid For A Secure Future

Exit Norms

The exit norms for stocks in the derivatives segment require them to meet specific criteria. If a stock fails to meet these criteria for three months, it will exit the derivatives segment. However, existing unexpired contracts will be permitted to trade until expiry, and new strikes may be introduced in the existing contract months. Once a stock is excluded from the derivatives segment, it will not be considered for re-inclusion for one year.