SEBI has introduced new rules for stocks in the F&O (Futures and Options) segment. These changes, announced on August 29, 2024, ensure that only high-quality stocks with strong market activity remain in this segment. The updates are aimed at making India’s F&O trading more robust.
The new rules come as market capitalization and trading volumes have grown significantly. SEBI’s updates ensure the F&O segment stays focused on high-liquidity trading.
New Rules for Stocks in the F&O (Futures & Options) Segment
High-Quality F&O Stocks
One of the main changes is the increase in the Median Quarter Sigma Order Size (MQSOS) requirement from ₹25 lakh to ₹75 lakh. This means only stocks with high trading volume can enter the F&O segment.
SEBI’s goal here is to include only stocks with substantial market participation and to reduce the chances of illiquid or speculative stocks being traded.
Also read: Futures and Options Trading: Learn To Make Unlimited Gain
Increased Market-Wide Position Limit
Another key change is raising the Market Wide Position Limit (MWPL) from ₹500 crore to ₹1,500 crore. With rising market capitalization, this higher threshold will ensure that only stocks with strong market positions and investor interest remain in the F&O segment.
Raising the Average Daily Delivery Value
SEBI has also raised the Average Daily Delivery Value (ADDV) requirement from ₹10 crore to ₹35 crore. This update reflects the increase in daily trading activity and ensures that only stocks with consistent, high-value trades are eligible for derivatives trading.
Impact of Non-Compliance
Under the new rules, if stocks fail to meet these standards for three consecutive months, they will be removed from the F&O segment. No new contracts will be issued for these stocks, and they won’t be allowed back in the segment for at least one year.
However, existing contracts will continue trading until they expire, allowing traders some flexibility.
Introducing the Product Success Framework
SEBI introduced a new set of rules called the Product Success Framework (PSF). These rules make it harder for certain stocks to stay in the derivatives market.
Here’s what the PSF says:
- A stock needs to be actively traded to stay in the derivatives market.
- Specifically, 15% of all traders in stock derivatives must trade in these stock’s derivative contracts every month. If not, at least 200 different traders must trade in these stocks.
- If either of these conditions is not met, the stock might be removed from the derivatives market.
Additionally, trading must occur on at least 75% of the trading days during the review period. The stock must also achieve an average daily turnover of at least ₹75 crore and an average daily notional open interest of at least ₹500 crore during the review period.
Also read: 10 Golden Rules of Trading Options: Dos and Don’ts
SEBI’s decision to tighten these criteria shows a commitment to maintaining the integrity of the F&O segment by focusing on quality. With the Product Success Framework, only the most actively traded and widely held stocks will stay in the derivatives market, leading to more stable and efficient trading.
Six-Month Transition Period for Existing Stocks
Existing stocks in the derivatives segment have six months to comply with the new rules. This allows them time to meet the standards and to make a smooth transition.
Implications for Traders and Investors
SEBI’s changes will reshape the F&O landscape in India. By raising the bar for entry and maintaining strict exit criteria, SEBI aims to create a healthier, more resilient market. Now, traders and investors will focus on stocks that meet these tough new standards and adjust their strategies accordingly.
Conclusion
SEBI’s new rules mark a significant shift in the Indian derivatives market. They prioritize stability, liquidity, and quality. The message is clear: only the strongest, most liquid stocks will succeed in the F&O segment. These changes take effect immediately, with a clear plan for compliance and enforcement.
