SEBI tightens eligibility norms for F&O; links retail investor exposure to networth

Capital and commodities markets regulator SEBI has tightened the eligibility criteria for securities in which futures and options (F&O) trading can be allowed. Market experts say the move is aimed at reducing excessive speculation in the derivatives segment as well as reducing volatility by weeding out some of the illiquid securities.

Also, the regulator has indirectly capped the positions that retail investors can take in the cash as well as derivatives segment, by linking exposure to networth.

Under the revised guidelines, F&O securities will need to have a marketwide position limit of Rs 500 crore (Rs 300 crore at present) and a median quarter sigma order size of Rs 25 lakh (Rs 10 lakh at present).

date = new Date(); date.setTime(date.getTime()+(1*24*60*60*1000)); $.cookie("dfp_cookie_article", "Y1", {expires: date,path:"/",domain: ".moneycontrol.com"});

The market-wide position limit (MWPL) is the maximum aggregate open position allowed on futures and option contracts of a particular underlying stock. It should be lower of either 30 times the average number of shares traded daily during the previous calendar month in the relevant underlying security in the underlying segment or 20 per cent of the number of shares held by non-promoters in the relevant underlying security, i.e. free float holding.

date = new Date(); date.setTime(date.getTime()+(1*24*60*60*1000)); $.cookie("dfp_cookie_article", "Y1", {expires: date,path:"/",domain: ".moneycontrol.com"});

Quarter sigma order size is the order size (price multiplied by trading volume) required for the stock price movement of 1/4th of standard deviation of the stock price. A higher quarter sigma order size indicates higher liquidity, and makes it tougher for manipulators to influence the stock price.

Currently, there are 208 securities in the NSE’s F&O list. An analysis by Moneycontrol shows that only 20 of these stocks have a market wide position limit of Rs 500 crore or less.

There is also an additional criterion of average daily 『deliverable』 value in the cash market of Rs 10 crore for six continuous months for a stock to be eligible for F&O trading. What this means is that the value of the number of shares that actually changed hands, as opposed to positions that were squared off at the end of the day, must be Rs 10 crore. The higher this value, the less speculative activity there is in a stock.

A Moneycontrol analysis showed that only two out of 208 securities in the F&O list failed to make the cut. This could mean that the threshold for weeding out stocks with high levels of speculative activity, from the F&O list could be low.

Stocks which are currently in derivatives, but fail to meet any of the revised rules, would be physically settled. They would be dropped from the F&O list if they fail to meet any of the enhanced criteria within a period of one year from the specified date or fail to meet any of the current existing criteria for a continuous period of three months.

Stocks which are currently in derivatives and meet the enhanced criteria shall be cash settled. Such stocks if they fail to meet any one of the enhanced criteria for a continuous period of three months shall move from cash settlement to physical settlement. After moving to physical settlement if such stock does not meet any of the current existing criteria for a continuous period of three months, then it would exit out of derivatives. After a period of one year from the specified date, only those stocks which meet the enhanced criteria would remain in the list.

Also, SEBI has proposed that individual investors can take exposure to stocks in the market(cash and derivatives) 「up to a computed exposure based on their disclosed income as per their Income Tax Return (ITR) over a period of time.」

The regulator has not specified the limit for now.

「For exposure beyond the computed exposure, the intermediary would be required to undertake rigorous due diligence and take appropriate documentation from the investor,」 the SEBI release said.

In July 2017, the regulator had flagged concerns about growing participation by retail investors in the F&O market, without understanding the risks completely.

In December, the regulator had released data showing how the F&O to cash market turnover multiple of 15 times for India was much higher than most global stock markets. Only South Korea with a multiple of 24 was ahead of India on that list.

本文來源：https://www.moneycontrol.com/news/business/markets/sebi-tightens-eligibility-norms-for-f-links-retail-investor-exposure-to-networth-2539357.html