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Derivative

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    Introduction



    Eligibility Criteria for selection of Securities
  • The eligibility of a stock / index for trading in Derivatives segment is based upon the criteria laid down by SEBI through various circulars issued from time to time. The latest circular issued in this respect is circular No. : SEBI/DNPD/Cir-31/2006 dated September 22, 2006. Based on various circulars, the following criteria will be adopted by the Exchange w.e.f September 22, 2006, for selecting stocks and indices on which Futures & Options contracts would be introduced.
  • Eligibility criteria of stocks
  • The stock shall be chosen from amongst the top 500 stocks in terms of average daily market capitalisation and average daily traded value in the previous six months on a rolling basis.
  • The stock’s median quarter-sigma order size over the last six months shall be not less than Rs. 0.10 million (Rs. 1 lac). For this purpose, a stock’s quarter-sigma order size shall mean the order size (in value terms) required to cause a change in the stock price equal to one-quarter of a standard deviation.
  • The market wide position limit in the stock shall not be less than Rs. 500 million (Rs. 50 crores). The market wide position limit (number of shares) shall be valued taking the closing prices of stocks in the underlying cash market on the date of expiry of contract in the month. The market wide position limit of open position (in terms of the number of underlying stock) on futures and option contracts on a particular underlying stock shall be 20% of the number of shares held by non-promoters in the relevant underlying security i.e. free-float holding.
  • Continued Eligibility
  • For an existing stock to become ineligible, the criteria for market wide position limit shall be relaxed upto 10% of the criteria applicable for the stock to become eligible for derivatives trading.
  • To be dropped out of Derivatives segment, the stock will have to fail the relaxed criteria for 3 consecutive months.
  • If an existing security fails to meet the eligibility criteria for three months consecutively, then no fresh month contract shall be issued on that security.
  • Further, the members may also refer to circular no. NSCC/F&O/C&S/365 dated August 26, 2004, issued by NSCCL regarding Market Wide Position Limit, wherein it is clarified that a stock which has remained subject to a ban on new position for a significant part of the month consistently for three months, shall be phased out from trading in the F&O segment.
  • However, the existing unexpired contracts may be permitted to trade till expiry and new strikes may also be introduced in the existing contract months.
     
  • Re-introduction of dropped stocks
  • A stock which is dropped from derivatives trading may become eligible once again. In such instances, the stock is required to fulfill the eligibility criteria for three consecutive months to be re-introduced for derivatives trading.