The Securities and Exchange Board of India (SEBI) is considering significant changes to the criteria for stocks entering and exiting the Futures and Options (F&O) segment of the derivatives market. The changes are driven by an updated assessment of market conditions, reflecting increased market capitalization and turnover since the last criteria review in 2018 . Key aspects of the proposed reforms include:

Higher Thresholds for Entry:

Median Quarter Sigma Order Size: The threshold for this metric is set to increase from Rs 25 lakh to a range of Rs 75 lakh to Rs 1 crore. This change is aimed at ensuring that only stocks with substantial liquidity and trading activity qualify for the derivatives segment.

Market-Wide Position Limit: SEBI proposes raising this limit from Rs 500 crore to a range of Rs 1,250 crore to Rs 1,750 crore. This adjustment seeks to accommodate the increased market size and reduce the risk of market manipulation .

Introduction of the Product Success Framework (PSF):

The PSF is designed to evaluate the performance of single-stock derivatives, ensuring that they maintain sufficient turnover, open interest, and participation. Stocks must have been traded in the derivatives market for at least six months to be considered under this framework .

Potential Entrants to the F&O Segment

If the proposed changes are implemented, a range of new stocks could qualify for entry into the F&O segment. A notable list of 78 probable entrants includes:

Life Insurance Corporation (LIC): As one of the largest public sector insurers, LIC's inclusion would bring significant liquidity and trading volume.

Zomato: The popular food delivery platform could benefit from increased exposure and trading opportunities in the derivatives market.

YES Bank: This bank's entry would add another financial institution to the F&O segment, potentially increasing diversity and trading activity.

Jio Financial Services: A major player in the financial sector, Jio Financial's inclusion could attract considerable investor interest.

Paytm: The fintech company, known for its digital payments and financial services, could see enhanced investor engagement.

Adani Green Energy: Given its prominence in the renewable energy sector, Adani Green's entry could bolster interest in green investments .

Other notable names from various sectors include:

DMart: A leading retail chain that could add consumer sector exposure to the F&O market.

Varun Beverages: A significant player in the beverage industry, potentially bringing more sectoral balance.

Bank of India: Another major financial institution, enhancing the representation of the banking sector in derivatives trading.

Stocks Facing Potential Exit from F&O

Conversely, certain stocks could be removed from the F&O list if the new criteria are applied:

Abbott India: A prominent pharmaceutical company that might not meet the updated liquidity and trading volume thresholds.

Bata India: Known for its footwear, Bata may be excluded due to insufficient trading activity.

United Breweries: The beverage company, famous for its Kingfisher brand, might also face exclusion under the new rules.

Torrent Pharma: Another major pharmaceutical stock that could be impacted by the revised criteria.

Mahanagar Gas Limited (MGL): A key player in the city gas distribution segment, potentially facing exclusion due to the new thresholds .

SEBI's proposed changes aim to ensure that the derivatives market remains robust and reflective of the underlying cash market's size and liquidity. By updating the entry and exit criteria for the F&O segment, SEBI seeks to mitigate risks and enhance market stability. The introduction of high-profile stocks like LIC, Zomato, and YES Bank could invigorate the derivatives market, while ensuring that only stocks with adequate liquidity and trading volumes remain in the segment .

Investors should stay informed about these developments, as the inclusion or exclusion of stocks from the F&O segment can significantly impact trading strategies and market dynamics.