SEBI tightened Eligibility & Exit Criteria for Stocks in Derivatives Segment to curb Manipulation

The market regulator, Securities and Exchange Board of India (SEBI) on 23 July 2012 tightened eligibility and exit criteria for stocks in the derivatives segment by increasing the benchmark liquidity level for any scrip to be eligible for trading in the derivatives segments. By doing away with illiquid stocks SEBI aims to check manipulation. According to the circular issued by SEBI, scrips with a minimum trading volume value of Rs 10 lakh and market wide position limit (MWPL) or market capitalisation of Rs 300 crore cannot be eligible for entry into the Future and Options (F&O) segment.

Over 220 scrips trade in the F&O segment on the National Stock Exchange (NSE) at present. Of these 220 scrips only 100 scrips will possibly meet the new eligibility criteria set by the market regulator.

The minimum Median Quarter Sigma Order Size, which indicates liquidity/order size in a scrip, a requirement for introduction in derivatives segment was revised to Rs 10 lakh, from Rs 5 lakh at present. The MWPL, indicating the size of the company was also raised to Rs 300 crore, from Rs 100 crore. Scrips which fail to maintain a minimum MWPL requirement of Rs 200 crore would cease to be in the F&O segment. The earlier limit was set at Rs 60 crore.

SEBI also tightened the minimum conditions for a stock to continue trading in the derivatives segment.  As per the circular, a stock's MQSOS over the last six months ought to be more than Rs 5 lakh against Rs 2 lakh earlier for the stock to continue trading.

SEBI’s measures in this respect are expected to restrain any manipulation in share prices and bring in more meaningfulness to the F&O segment. Stock exchanges (SEs) will now have to thus follow strict criteria for futures and option (F&O) securities.