Sebi Revises Entry and Exit Rules for Stocks in Derivatives Segment
The Securities and Exchange Board of India (Sebi) has implemented significant updates to the criteria governing the entry and exit of stocks in the derivatives segment. This overhaul is designed to ensure that only high-quality stocks with adequate market depth are allowed in this segment, following a comprehensive review of the previous regulations that had not been amended since 2018.
Updated Entry Criteria for Stocks in the Derivatives Segment
Under the revised regulations, Sebi has introduced more stringent requirements for stocks seeking entry into the derivatives segment. One of the key changes is the increase in the median quarter sigma order size (MQSOS). Previously set at ₹25 lakh, the MQSOS requirement has been elevated to ₹75 lakh on a rolling basis for the past six months. This adjustment aims to ensure that only stocks with substantial trading volumes and liquidity are considered.
In addition to the MQSOS change, Sebi has raised the market-wide position limit (MWPL) for a stock. The MWPL, which previously stood at ₹500 crore, has been increased to ₹1,500 crore for the past six months. This higher limit is intended to enhance the depth of stocks in the derivatives market, ensuring that only those with significant market presence are included.
Another critical update is the new requirement for the average daily delivery value in the cash market. The threshold has been set at ₹35 crore for the past six months, a substantial increase from the previous limit of ₹10 crore. This new criterion is aimed at ensuring that only stocks with a high level of market activity and liquidity qualify for the derivatives segment.
Revised Exit Criteria for Stocks in Derivatives Segment
The updated exit criteria are designed to ensure that stocks which no longer meet the revised standards are promptly removed from the derivatives market. According to the new rules, any stock that fails to meet the revised criteria for three consecutive months, based on data from the preceding six months, will be removed from the derivatives segment. This policy is intended to maintain the quality and liquidity of stocks in this market.
For stocks that are removed from the derivatives segment, new contracts will not be issued. However, existing unexpired contracts can continue to be traded until their term ends. Additionally, new strikes may be introduced in ongoing contract months for these stocks. The revised exit criteria will only apply to stocks that have been part of the derivatives market for six months or more from their initial introduction date.
These changes are part of Sebi’s broader efforts to enhance the quality and stability of the derivatives market. By enforcing stricter entry and exit criteria, Sebi aims to ensure that only stocks with adequate market depth and liquidity are included in the derivatives segment. This move is expected to improve market performance and stability, benefiting both investors and market participants.
The revised regulations reflect Sebi’s commitment to maintaining high standards in the derivatives market and addressing any potential issues related to stock quality and market depth. The new criteria are designed to foster a more robust and efficient derivatives market, aligning with global best practices and enhancing the overall trading environment.
In summary, the recent updates to the entry and exit rules for stocks in the derivatives segment are aimed at ensuring that only high-quality stocks with sufficient market depth are traded. The increased MQSOS, MWPL, and average daily delivery value requirements, along with the revised exit criteria, are all part of Sebi’s strategy to improve market performance and stability. These changes will help in maintaining a well-regulated and efficient derivatives market, benefiting all stakeholders involved.
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