Almost 78 stocks, including LIC, Zomato, YES Bank, Jio Financial, Paytm, RVNL, and Adani Green, could enter the Futures & Options (F&O) list as the markets regulator, SEBI, has proposed to review the selection criteria for the entry and exit of stocks in the derivatives market.
“The last review of the eligibility criteria for introducing stocks in the derivatives segment was conducted in 2018. Since then, market parameters reflecting the size and liquidity of the cash market, viz., market capitalization and turnover have moved up considerably,” SEBI stated in a consultation paper on the issue.
Under the proposed rules, SEBI aims to increase the Median Quarter Sigma Order Size from Rs 25 lakh to Rs 75 lakh-Rs 1 crore. Additionally, the market-wide position limit is proposed to be raised from Rs 500 crore to Rs 1,250 crore- Rs 1,750 crore.
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SEBI has also proposed the introduction of the Product Success Framework (PSF) for single-stock derivatives. PSF will be applicable only to those stock derivatives that have completed at least six months from the month of introduction.
“This is required to ensure that stocks have sufficient turnover, open interest, and widespread participation. The criterion of six months is needed so that stocks have a sufficient gestation period,” the regulator explained.
After examining the proposed rules, brokerage firm Nuvama Alternative & Quantitative Research released a list of 78 probable stocks that could enter the F&O segment if they meet the proposed criteria. Notable names include Zomato, YES Bank, Jio Financial, NHPC, Adani Green, IRFC, Varun Beverages, BSE, LIC, DMart, Bank of India, Titagarh Rail, HUDCO, and Sterling & Wilson Solar.
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Conversely, stocks that could face removal from the F&O segment if the proposed criteria are implemented with any changes in one of the criteria include Abbott India, Bata India, United Breweries, Torrent Pharma, and MGL.
In the consultation paper, SEBI has sought comments and inputs from all stakeholders on updating the selection criteria for the entry and exit of stocks in the derivatives market.
“Without sufficient depth in the underlying cash market and appropriate position limits around leveraged derivatives, there can be higher risks of market manipulation, increased volatility, and compromised investor protection. Given all this, there is a need for SEBI to ensure that only high-quality stocks in terms of size, liquidity, and market depth are available in the derivatives segment,” SEBI stated.
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