On August 30, 2024, the Securities and Exchange Board of India (SEBI) issued a comprehensive update to the eligibility criteria for stocks in the derivatives segment. This move is part of SEBI's ongoing efforts to ensure market stability, prevent manipulation, and enhance investor protection.
Major Revisions in Eligibility Criteria:
1. Median Quarter Sigma Order Size (MQSOS):
· Old Threshold: INR 25 lakhs
· New Threshold: INR 75 lakhs
· Rationale: Given the increase in average market turnover, the MQSOS requirement has been tripled to ensure only stocks with substantial trading volume are included.
2. Market Wide Position Limit (MWPL):
· Old Limit: INR 500 crores
· New Limit: INR 1,500 crores
· Rationale: With market capitalization increasing significantly, the MWPL has been adjusted to reflect the larger scale of trading and to manage systemic risk more effectively.
3. Average Daily Delivery Value (ADDV):
· Old Benchmark: INR 10 crores
· New Benchmark: INR 35 crores
· Rationale: This increase ensures that only stocks with significant liquidity and trading activity are eligible, thus improving market efficiency and reducing volatility.
Exit Criteria:
Stocks that do not meet the revised criteria for three consecutive months will be removed from the derivatives segment. A one-year re-inclusion ban will apply to ensure that stocks are only reintroduced once they meet the new standards. Existing contracts will be allowed to trade until expiration, but no new contracts will be issued.
Product Success Framework (PSF):
SEBI has also introduced a Product Success Framework for stock derivatives, aimed at ensuring the effectiveness and viability of derivatives trading. The PSF includes:
· Trading Member Activity: At least 15% of trading members or 200 members (whichever is lower) must have traded in the stock's derivatives.
· Trading Frequency: The stock must be traded on at least 75% of trading days during the review period.
· Turnover and Open Interest: Minimum average daily turnover of INR 75 crores and average daily notional open interest of INR 500 crores.
Stocks failing to meet these PSF criteria for three months will also be removed from the derivatives segment, with the same one-year re-inclusion ban.
Conclusion:
SEBI’s revised guidelines aim to refine market operations, reduce the risk of manipulation, and protect investors. By setting higher thresholds and introducing robust frameworks, SEBI is enhancing the integrity and efficiency of the derivatives market.
Comments