India’s securities regulator, the Securities and Exchange Board of India (SEBI), is considering altering the rules for including stocks in the futures and options (F&O) segment, also known as the equity derivatives market.
In its latest annual report, SEBI mentioned that the criteria for adding stocks to the derivatives market were last reviewed in 2018.
Given the significant shifts in market size, liquidity, market capitalization, and turnover since then, the regulator is suggesting a reevaluation of the conditions for including or maintaining shares in the derivatives segment.
To be eligible for trading in the stock exchanges’ derivative contracts, a share must meet specific conditions.
These conditions involve factors such as market capitalization, average daily trading volume, quarter sigma value, and average daily deliverable volume.
At present, the stocks listed in the futures and options segment don’t have fixed circuit limits.
For instance, if a stock’s circuit limit (both upper and lower) is set at 10%, adjustments occur once the stock price reaches this threshold.
However, a 15-minute cooling period is observed before a new limit is applied to the stock’s futures and options.
SEBI’s annual report indicates that the regulator is working on reinforcing the existing price band structure for these stocks and their derivative contracts.
This measure aims to manage volatility in these stocks within the equity derivatives segment, ensuring improved risk management and proper trading.
The proposed structure will also incorporate provisions to prevent sudden market fluctuations and errors tied to traders’ systems.
