SEBI Tightens Eligibility Criteria For Stocks In Derivatives Segment With Stricter Standards And New Product Success Framework

The revised criteria introduce stricter standards for stocks to be eligible for entry into the derivatives segment. These criteria are based on the stock's performance in the cash market over the preceding six months on a rolling basis.

One of the changes in the eligibility criteria is the increase in the Median Quarter Sigma Order Size (MQSOS) from Rs 25 lakh to Rs 75 lakh. This adjustment was made in response to the significant increase in average market turnover since the last review conducted in 2018. The MQSOS is a measure of the order size in the market and a higher threshold ensures that only stocks with substantial market activity are allowed into the derivatives segment.

In addition to the MQSOS, the Market Wide Position Limit (MWPL) for stocks has been increased from Rs 500 crore to Rs 1,500 crore.

The Average Daily Delivery Value (ADDV) in the cash market has also been revised from Rs 10 crore to Rs 35 crore.

SEBI has also introduced revised exit criteria to ensure that stocks that no longer meet the stringent requirements are promptly removed from the derivatives segment. If a stock fails to meet any of the revised criteria for a continuous period of three months, it will be required to exit the derivatives segment. No new contracts will be issued for such stocks, although existing unexpired contracts may continue to trade until expiry.

Stocks that are excluded from the derivatives segment will not be considered for re-entry for at least one year from their last trading day in the segment.

To further refine the eligibility of stocks in the derivatives segment, SEBI has also introduced a Product Success Framework (PSF) for single-stock derivatives.

Under the PSF, at least 15% of trading members active in all stock derivatives, or 200 trading 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 the trading days during the review period. The stock must also have an average daily turnover of at least Rs 75 crore and an average daily notional open interest of at least Rs 500 crore during the review period.

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