SEBI Tightens Entry and Exit Rules for Stocks in Derivatives Segment: Key Changes

The Securities and Exchange Board of India (Sebi) has made stricter rules for stocks to be included in the futures and options (F&O) segment. Sebi’s goal is to ensure that only highly liquid stocks with broad participation can be traded in derivatives, reducing the risk of market manipulation.

Updated Eligibility Criteria

In a circular issued on Friday, Sebi stated that the eligibility criteria for entering and exiting the derivatives market have been updated to reflect market growth since the last review in 2018.

Increase in Median Quarter Sigma Order Size (MQSOS)

One key change is the increase in the median quarter sigma order size (MQSOS), which is a measure used to include stocks in the F&O segment. This has been raised to ₹75 lakh from the previous ₹25 lakh, as the average market turnover has grown significantly.

Higher Market-Wide Position Limit (MWPL)

Additionally, the market-wide position limit (MWPL) for a stock over the previous six months has been increased to ₹1,500 crore from ₹500 crore. This change reflects the growth in market capitalisation since the last review.

Revised Average Daily Delivery Value (ADDV)

Sebi has also raised the average daily delivery value (ADDV) in the cash market to at least ₹35 crore, up from the previous ₹10 crore.

Criteria for Trading in Derivatives

Stocks that meet these criteria in the cash market of any stock exchange will be allowed to trade in the equity derivatives segment across all exchanges. The clearing corporations will settle derivative contracts based on the volume-weighted average price (VWAP) from the cash market.

Consideration of Surveillance and Investigations

Sebi also mentioned that any ongoing investigations, surveillance concerns, or administrative issues would be considered before allowing a stock into the derivatives segment.

Exit Criteria for Stocks in Derivatives Segment

If a stock in the derivatives market fails to meet these criteria for three consecutive months, it will be removed from the segment. No new contracts will be issued for stocks that are set to exit the derivatives market.