The Securities and Exchange Board of India laid down the risk containment measures and the broad eligibility criteria for new stocks to be introduced under the futures and options segment.
The move follows, Sebi approval to the exchanges to increase the number of stocks traded under the futures and options segment to a maximum of 500.
The eligibility norm for stock chosen should be among the top 500 stock in terms of average daily market capitalisation and average daily traded value in the previous six month on a rolling basis.
Further, stock's median quarter-sigma order size over the last six months shall be at least Rs 500,000. 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.
Sebi has also stipulated that exchanges for the purpose of calculating quarter sigma order size in a stock by taking four snapshots in a day from the order book of the stock in the past six months.
Market regulator said the quarter sigma order size in a stock shall be calculated on the 15th of each month, on a rolling basis, considering the order book snapshots in the previous six months.
Similarly, the average daily market capitalisation and the average daily traded value shall also be computed on the 15th of each month, on a rolling basis, to arrive at the list of top 500 stocks.
In media release Sebi said, "If a stock fails to meet the aforesaid eligibility criteria for three months consecutively, then no fresh month contract shall be issued on that stock."
"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 release further added.
In case of unlisted companies coming out with initial public offering, if the net public offer is Rs 500 crore (Rs 5 billion) or more, then the exchanges may consider introducing stock options and stock futures on such stocks at the time of its listing in the cash market.
In such cases, the derivative contracts on a new stock index shall be permitted if the stocks contributing 90 per cent weightage in the index.
On the risk containment measures, Sebi has stipulated that for the purpose of computing worst scenario loss on a portfolio, the price scan range for stock option and single stock future contracts shall henceforth be linked to liquidity, measured in terms of impact cost for an order size of Rs 500,000, calculated on the basis of order book snapshots in the previous six months.
Accordingly, if the mean value of impact cost exceeds 1 per cent, the price scanning range would be scaled up by square root of three.
This would be in addition to the requirement of scaling up for the look-ahead period , that is the time in which mark to market margin is collected.
