CIRCULAR
SEBI/HO/MRD/MRD-PoD-2/P/CIR/2024/116 August 30, 2024
To
All Recognized Stock Exchanges
Sir/Madam,
Subject: Review of eligibility criteria for entry/exit of stocks in derivatives segment.
1. Background
1.1. Derivative markets enhance price discovery and market liquidity. However, without
sufficient depth in the underlying cash market, sufficient volumes in derivatives
markets, and appropriate position limits around leveraged derivatives, there can be
higher risks of market manipulation, increased volatility, and compromised investor
protection.
1.2. To help develop the securities market while being mindful of these concerns, SEBI
vide section 3.1.2 of Chapter 5 of Master Circular on Stock Exchanges and Clearing
Corporations, dated October 16, 2023, has, inter-alia, laid down the eligibility criteria
for entry/exit of stocks in derivatives segment.
1.3. Given the need to ensure that only high quality stocks with sufficient market depth
are allowed to trade in derivatives segment and considering the growth witnessed in
market parameters since the last review conducted in 2018, the eligibility criteria for
entry/exit of stocks in derivatives segment has been revised as under.
Page 1 of 9
2. Entry Norms for stocks in derivatives segment
2.1. The stocks meeting the below stated eligibility criteria, based on performance of the
underlying cash market, for a continuous period of six months, on a rolling basis,
based on the data for previous 6 months, shall be eligible for entry into the derivatives
segment.
Table-1
S. Existing Rationale for
Criteria Revised criteria
No. criteria change
Average Daily
Market
Capitalization and
Amongst
Average Daily Amongst top 500
1. top 500 No Change
Traded value stocks
stocks
(ADTV) in the
previous six months
on a rolling basis
Since average
The stock’s Median market turnover is
Quarter Sigma now over 3.5
Order Size times the figure
(MQSOS) over the INR 25 during the last
2. INR 75 lakhs
previous six lakhs review, MQSOS
months, on a criteria would
rolling basis, shall need to increase
not be less than: between 3-4
times.
Page 2 of 9
S. Existing Rationale for
Criteria Revised criteria
No. criteria change
The stock’s market
wide position limit
Market
(MWPL), over the
INR 500 capitalisation is
3. period of previous INR 1,500 crores
crores now 2.8 times the
six months, on a
last review.
rolling basis shall
not be less than
Average Daily
Delivery Value
has increased by
over 3 times
The stock’s Average
since the last
daily delivery value
review.
(ADDV) in the cash
market, in the INR 10
4. INR 35 crores Note that upon
previous six months crores
expiry, unlike
on a rolling basis,
index derivatives
shall not be less
that are cash
than
settled, single
stock derivatives
are physically
settled.
2.2. Stocks which meet the eligibility criteria in the underlying cash market of any stock
exchange would be permitted to trade in equity derivatives segment of all stock
exchanges. The stock exchanges shall settle the derivative contracts at a price
Page 3 of 9
calculated by the clearing corporations based on volume weighted average price
(VWAP) from the cash segment across all exchanges.
2.3. In addition, other aspects, such as, any surveillance concerns, ongoing
investigations, or other administrative considerations shall be taken into account by
SEBI, while considering a stock for introduction into derivatives segment.
3. Exit norms based on performance in underlying cash market
3.1. If a stock in derivatives segment fails to meet any of the above criteria, as mentioned
at Table-1 above, for a continuous period of three months, on a rolling basis, based
on the data for previous six months, then it shall exit from derivatives segment. No
new contract shall be issued on stocks that may exit the derivatives 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.
3.2. The abovementioned criteria for exit shall apply to only those stocks which have
completed at-least 6 months from the date of introduction. After the said gestation
period, the stocks failing to meet the eligibility criteria as stated at Table-1 above,
shall exit from derivatives segment in the upcoming review cycle.
3.3. Additionally, for existing stocks in the derivatives segment, there would be a
gestation period of 3 months before applicability of the said exit criteria. At the end
of the gestation period, stocks not meeting the eligibility criteria, as stated at Table-
1 above, shall exit the derivatives segment in the upcoming review cycle.
3.4. A stock will exit from derivatives segment if it fails in meeting eligibility criteria across
all exchanges based on performance in the underlying cash market. If a stock is
Page 4 of 9
meeting the eligibility criteria on any exchange, it will continue to be eligible for
derivatives segment on all exchanges.
3.5. Once a stock is excluded from the derivatives segment, it shall not be considered for
re-inclusion for a period of one year from its last trading day in the derivatives
segment.
4. Exit norms based on introduction of a Product Success Framework (PSF) for
stock derivatives
4.1. On similar lines as the extant PSF for index derivatives, it has been decided to
introduce additional exit criteria for stocks from the derivatives segment, by
introducing PSF for single stock derivatives also. The criteria for the said PSF
framework is as follows.
4.1.1. At least 15% of trading members active in all stock derivatives (trading member
who has traded during the month) or 200 trading members, whichever is lower,
shall have traded in any derivative contract on the stock being reviewed on an
average on monthly basis during the review period,
4.1.2. Trading on a minimum of 75% of the trading days during the review period,
4.1.3. Average daily turnover (futures + options premium) of at least INR 75 crores
during the review period, and
4.1.4. Average daily notional open interest (futures + options notional) of at least INR
500 crores during the review period.
4.2. Each of the above criteria shall be satisfied for continuation of the derivatives on the
given stock. If any stock fails to satisfy any of the above mentioned criteria for a
continuous period of three months, on a rolling basis, based on the data for previous
six months, then no fresh contracts shall be issued on that stock. However, the
Page 5 of 9
existing unexpired contracts may be permitted to trade till expiry and new strikes
may also be introduced in the existing contracts.
4.3. Further, only those stock derivatives which have completed at least 6 months from
the date of introduction shall be considered for review in the upcoming review cycle.
After the said gestation period, the stocks failing to meet the eligibility criteria as
stated at para 4.1. above, for three subsequent months, shall exit from derivatives
segment.
4.4. For existing stocks, the PSF shall apply after six months from the date of
implementation of this circular. At the end of the gestation period, stocks not meeting
the PSF criteria as stated at para 4.1. above, shall exit the derivatives segment in
the upcoming review cycle.
4.5. Once a stock is excluded from the derivatives segment due to PSF, it shall not be
considered for re-inclusion for a period of one year from its last trading day in the
derivatives segment.
4.6. The PSF review cycle shall be aligned with the review of entry and exit norms based
on performance in underlying cash market i.e. all the above criteria for PSF shall be
calculated on the 15th of each month, on a rolling basis, considering the data for
previous six months.
4.7. A stock will exit from derivatives segment if it fails to meet the PSF criteria on all the
exchanges. If a stock is meeting the PSF criteria on any exchange, it will continue to
be eligible for derivatives segment on all exchanges.
5. Illustrations on exit timelines of stocks under various scenarios are placed below:
Page 6 of 9
5.1. Exit norm based on performance of the underlying
Table-2
Existing stock as on Gestation period Exit timeline
date
September 15, 2024 3 months for Review conducted on
applicability of exit December XX, 2024
criteria, aligned with the
review cycle (based on past 6
months rolling data for
the period ending 15-
Oct-2024, 15-Nov-2024
and 15-Dec-2024)
Table-3
New stock introduced Gestation period Exit timeline
on
September 02, 2024 6 months for Review conducted on
applicability of exit March XX, 2025
criteria from date of
introduction and (based on past 6
aligned with the review months rolling data for
cycle the period ending 15-
Jan-2025 ,15-Feb-2025
and 15-Mar-2025)
September 30, 2024 6 months for Review conducted on
applicability of exit April XX 2025
criteria from date of
introduction and (based on past 6
aligned with the review months rolling data for
cycle the period ending 15-
Feb-2025,15-Mar-2025
and 15-Apr-2025)
Page 7 of 9
5.2. Exit norm based on Product Success Framework
Table-4
Existing stock as on Gestation period Exit timeline
date
September 15, 2024 6 months for Review conducted on
applicability of the March XX, 2025
criteria from date of
implementation of (based on past 6
circular and aligned months rolling data for
with the review cycle the period ending 15-
Jan-2025, 15-Feb-2025
and 15-Mar-2025)
Table-5
New stock introduced Gestation period Exit timeline
on
September 02, 2024 6 months for Review conducted on
conducting a review May XX 2025
from date of
introduction and (past 6 months rolling
aligned with the review data for the period
cycle ending 15-Mar-
2025,15-Apr-2025 and
15-May-2025)
September 30, 2024 6 months for Review conducted on
conducting a review Jun XX 2025
from date of
introduction and (past 6 months rolling
aligned with the review data for the period
cycle ending 15-Apr-
2025,15-May-2025 and
15-Jun-2025)
6. All other provisions mentioned in Master Circular No. SEBI/HO/MRD2/PoD-
2/CIR/P/2023/171 dated October 16, 2023, shall continue to be applicable
Page 8 of 9
7. The Stock exchanges are directed to:
7.1. Make amendments to the relevant bye-laws, rules and regulations for the
implementation of the above decision, as may be applicable/necessary;
7.2. Carry out system changes, if any, to implement the above;
7.3. Disseminate the provisions of this circular on their website;
7.4. Communicate to SEBI, the status of implementation of provisions of this circular.
8. The circular would be effective from the date of issuance.
9. The circular is being issued in exercise of powers conferred under Section 11(1) and
Section 11(2)(a) of the Securities and Exchange Board of India Act, to protect the
interests of investors in securities and to promote the development of, and to
regulate the securities market and regulating business in stock exchanges and any other
securities markets.
Yours faithfully,
Vishal Shukla
General Manager
Policy Vertical- POD 2
Market Regulation Department
Page 9 of 9