InvestorQ : What is the eligibility for specific stocks to be included in the F&O list of stocks?
Lavanya Subramanian made post

What is the eligibility for specific stocks to be included in the F&O list of stocks?

Answer
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2 years ago


New securities being introduced in the F&O segment are based on the eligibility criteria which take into consideration average daily market capitalization, average daily traded value, the market wide position limit in the security, the quarter sigma values, the Average daily deliverable value and as approved by SEBI. The average daily market capitalisation and the average daily traded value would be computed on the 16th of each month, on a rolling basis, to arrive at the list of top 500 securities. Similarly, the quarter sigma order size, considering the order book snapshots of securities in the previous six months and average daily deliverable value of a stock, on a rolling basis in the previous six months, would be calculated on the 16th of each month. Further, 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 for the previous month.

Futures & Options contracts may be introduced on new securities which meet the below mentioned eligibility criteria, subject to approval by SEBI.

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. 25 lakhs. 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 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.

The Average daily delivery value in cash market shall not be less than Rs.10 crores in the previous six months on a rolling basis. The Average Daily Deliverable Value shall be computed taking Deliverable quantity as per client level as computed by NSE Clearing on a daily basis and close price of the trade date.

All the existing F&O stocks which meets the eligibility criteria shall continue to be cash settled (Till further notification from SEBI), however such F&O stocks, if fail to satisfy any of the eligibility criteria for a continuous period of three months, shall move from cash settlement to physical settlement for a period of one year.

After moving to physical settlement, the continued eligibility criteria is that market wide position limit in the stock shall not be less than Rs. 200 crores and stock's median quarter-sigma order size over the last six months shall not be less than Rs. 5 lakhs. Additionally, the stock’s average monthly turnover in derivative segment over last three months shall not be less than Rs. 100 crores.

If an existing security fails to meet aforesaid continued eligibility criteria for three months consecutively, then no fresh month contract shall be issued on that security. However, the existing unexpired contracts may be permitted to trade till expiry and new strikes may also be introduced in the existing contract months.

The number of eligible securities may vary from month to month depending upon the changes in average daily market capitalisation, average daily traded value, quarter sigma order sizes and average daily deliverable value calculated every month on a rolling basis for the past six months and also the market wide position limit in that security.