On Friday, the capital markets regulator Sebi (Securities and Exchange Board of India) unveiled new guidelines for which stocks can enter or exit the derivatives segment. This move aims to ensure that only top-quality stocks with strong market performance get to trade in this highly speculative environment.
 "Sebi's New Rules Shake Up Stock Trading! | Market News")
Eligible Criteria Altered for Stock Entry
The recent changes focus heavily on a stock’s performance in the cash market over the last six months. To make the cut for trading in the derivatives segment, a stock’s Median Quarter Sigma Order Size (MQSOS) now needs to be at least ₹75 lakh, up from the previous requirement of ₹25 lakh. Moreover, the Market Wide Position Limit (MWPL) has been substantially increased to ₹1,500 crore from the previous ₹500 crore due to rising market capitalizations.
Enhanced Requirements: Delivery Value and Operational Parameters
Additionally, the Average Daily Delivery Value in the cash market has skyrocketed from ₹10 crore to a whopping ₹35 crore. Stocks meeting these enhanced eligibility criteria in the cash market of any stock exchange will be allowed to trade in the equity derivatives segment.
New Settlement Rules
The stock exchanges will settle derivative contracts at a price calculated by the clearing corporations based on the volume-weighted average price (VWAP) from the cash segment across all exchanges. This revision helps maintain transparency and accuracy in pricing.
Additional Considerations and Exit Rules
When considering a stock for the derivatives segment, Sebi will also take into account any surveillance concerns, ongoing investigations, and other administrative issues. If a stock fails to meet the criteria for three consecutive months, it will be removed from the derivatives segment. Notably, no new contracts will be issued for such stocks, though existing contracts will be allowed to expire naturally.
Once removed, a stock cannot re-enter the derivatives segment for another year. This rigorous criterion ensures only the highest-quality stocks remain active.
Product Success Framework (PSF)
The regulator also introduced a Product Success Framework (PSF) for single-stock derivatives. For a stock to qualify, at least 15% of active trading members, or at least 200 members (whichever is lower), must have traded in any derivative contract on the stock being reviewed. Additionally, trading must occur on at least 75% of trading days during the review period. The stock should also have an average daily turnover of at least ₹75 crore and an average daily notional open interest of at least ₹500 crore during the review period.
Strengthening Investor Protection and Market Integrity
Sebi’s renewed focus aims to bolster market integrity by ensuring sufficient depth in the underlying cash market. The regulator emphasized that derivative markets enhance price discovery and liquidity but cautioned against the risks such as market manipulation, increased volatility, and compromised investor protection, which can arise without adequate market depth and volume.
Sebi’s latest move shows a sharp focus on maintaining a healthy market environment that prioritizes investor interests and market integrity. This approach will likely instill greater confidence among market participants, potentially leading to more stable and resilient financial markets.
