NSE has announced the exclusion of four stocks viz. Dish TV, Tata Motors DVR, NBCC and Castrol India from the F&O segment. The existing unexpired contracts of expiry months November 2019, December 2019 and January 2020 will continue to be available for trading till their respective expiry and new strikes would also be introduced in the existing contract months. However, no contracts will be available for trading with effect from January 31, 2020. Such exclusions are quite routine and there are different reasons to drop companies from the list of F&O eligibility.

Reasons stocks get excluded from the F&O list

Stocks are normally removed from the F&O list for various reasons. Here are some of the key reasons why stocks are dropped from the F&O list.

· A stock is dropped from the F&O trading if it does not conform to the criteria pertaining to volumes, spreads, market cap etc.

· Impact cost is another reason for dropping. If the stock has become such even a lesser amount of investment creates an impact on the stock price then it means that the liquidity is below par and is a fit case to cease F&O trading.

· The exchange also ceases F&O trading in stocks where there is a chance of unwarranted speculation in the same. This is more so where open interest is cornered in few hands and volumes are thin.

· The exchange also drops stocks from the F&O list if the speculative trading is also leading to synchronized trading in cash and F&O and is resulting in manipulation of price.

· The exchange also bans stocks where the options of OTM strikes are illiquid and become happy hunting ground for tax farming by speculators.

Does F&O exclusion impact the stock performance?

Exclusion from the derivative space doesn't speak well about the company and generally it is viewed as a negative for the stock price. Such companies normally see price correction. A classic example is Indian Bank which saw a sharp correction after being dropped from the F&O trading list.

Another aspect is that a good chunk of volumes come from arbitrage and that gives stability to the stock in the cash and futures segment. With a stock out of F&O, the arbitrage volumes dry up and hence this stock becomes a limited play for many traders and impacts the volumes in the long run. Also, investors see such stocks as risky due to the absence of any hedging product in them.