The Securities and Exchange Board of India (SEBI) on June 08, 2024, issued the Consultation Paper on the Review of Eligibility Criteria of Stock Derivatives in line with the market growth.
Derivatives contracts on stocks can be traded on recognized stock exchanges only if the underlying stocks satisfy certain objective criteria. Such criteria were last reviewed in 2018. The eligibility criteria for the introduction of stocks in the derivatives segment, as set out in Chapter 5 of the SEBI master circular on Stock exchanges and Clearing corporations, are as under:
o The stock shall be chosen from amongst the top 500 stocks in terms of Average Daily Market Capitalization and Average Daily Traded Value (ADTV) on a rolling basis,
o The stock’s Median Quarter-Sigma Order Size (MQSOS) over the last six months, on a rolling basis, shall not be less than₹25 Lakh,
o The Market Wide Position Limit (MWPL) in the stock shall not be less than ₹500 crores on a rolling basis, and
o Average Daily Delivery Value (ADDV) in the cash market shall not be less than ₹10 crores on a rolling basis. (Note that on expiry, unlike index derivatives that are cash settled, single stock derivatives are physically settled)
Further, if a stock fails to meet the abovementioned criteria for three months consecutively, then such stock shall exit from the derivatives segment i.e. no new contract shall be issued on that stock. However, existing unexpired contracts are permitted to trade till expiry and new strikes may also be introduced in the existing contract months.
