SEBI Tightens Grip On F&O Segment: 23 Stocks On Potential Exit List Amid New Guidelines; Check List

The Securities and Exchange Board of India (SEBI) has rolled out stringent new eligibility criteria for stocks trading in the Futures and Options (F&O) segment. This overhaul, effective immediately, is designed to ensure that only high-quality stocks with robust market depth remain in this segment, thereby reducing the risks of market manipulation and heightened volatility.

The F&O segment, known for its high-risk and high-reward nature, has historically attracted both institutional and retail investors looking to hedge or speculate on stock prices. However, concerns over market manipulation and the inclusion of stocks with insufficient market depth have prompted SEBI to act. The revised guidelines aim to address these concerns by tightening the eligibility criteria for stocks entering or remaining in the F&O segment.

According to the circular issued by SEBI, these changes are part of a broader effort to maintain market integrity and ensure that only stocks with sufficient liquidity and investor interest are traded in the F&O segment. By setting higher thresholds for key market parameters, SEBI hopes to weed out stocks that could be prone to manipulation or that lack the necessary market participation.

One of the most significant changes in the new guidelines is the revision of the stock's Median Quarter Sigma Order Size (MQSOS), a key metric used to gauge the average order size in the market. The MQSOS threshold has been increased from Rs 25 lakh to Rs 75 lakh. This tripling of the requirement reflects SEBI's intent to ensure that only stocks with a substantial trading volume are eligible for the F&O segment.

Another critical change involves the Market-Wide Position Limit (MWPL), which has been tripled from Rs 500 crore to Rs 1,500 crore. MWPL is a measure of the total open interest in the market for a particular stock, and increasing this limit ensures that only stocks with significant market participation can enter or remain in the derivatives segment.

Additionally, the Average Daily Delivery Value in the cash market has seen a steep increase from Rs 10 crore to Rs 35 crore. This change shows SEBI's focus on ensuring that stocks in the F&O segment have not only substantial trading activity but also a high level of actual delivery, reducing the likelihood of speculative trading dominating the market.

As these new guidelines take effect, market participants are already assessing which stocks might be impacted. According to a report by IIFL, a total of 23 stocks could be potential candidates for exclusion from the F&O segment based on the new criteria. These stocks include notable names such as Laurus Labs, with an open interest of Rs 1,166 crore, and Ramco Cements, with Rs 910 crore. Other stocks that might face exclusion include Deepak Nitrite, Atul Ltd, Torrent Pharmaceuticals, and Chambal Fertilizers, among others.

Here's a closer look at some of the stocks under the scanner:

Laurus Labs: With an open interest of Rs 1,166 crore, Laurus Labs is one of the larger players potentially facing exclusion.
Ramco Cements: This cement giant has an open interest of Rs 910 crore.
Deepak Nitrite: A key player in the chemical sector, Deepak Nitrite has an open interest of Rs 695 crore.
Torrent Pharmaceuticals: Another significant name, Torrent Pharmaceuticals, has an open interest of ₹652 crore.
Other potential exclusions include Gujarat Gas, Coromandel International, Granules India, and Syngene International.

For stocks that do not meet the new criteria for three consecutive months on a rolling basis, SEBI's circular mandates their removal from the F&O segment. This means that no new contracts will be issued for these stocks, effectively limiting their appeal to F&O traders. Additionally, stocks removed under these new norms will be barred from re-entering the derivatives market for at least a year.

SEBI has also introduced a Product Success Framework (PSF), which adds more rigorous exit criteria based on trading activity, turnover, and open interest benchmarks. This framework is designed to ensure that only the most actively traded and widely held stocks remain in the F&O segment.

While the new guidelines are set to push out certain stocks, they also pave the way for the inclusion of others that meet the revised criteria. Stocks such as Zomato, Adani Green, Jio Financial, DMart, and Tata Technologies are among those that could potentially be included in the F&O segment under the new guidelines.

These stocks have shown strong market participation and liquidity, making them suitable candidates for the derivatives market. Their inclusion could provide fresh opportunities for traders looking for new avenues in the F&O space.