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New eligibility norms for futures, option contracts

Our Bureau

Mumbai , July 19

THE Securities and Exchange Board of India (SEBI) has revised eligibility criteria for stocks and indices on which futures and options can be introduced.

According to the new rules, which will come into effect from September 1, stocks will be chosen from among the top-500 scrips in terms of average daily market capitalisation and average daily traded value for the previous six months on a rolling basis.

Also, the market wide position limit in the stock cannot be less than Rs 50 crore. "Since the market wide position limit for a stock is computed at the end of every month, the exchange shall ensure that stocks comply with this criterion before introduction of new contracts. Further, the market wide position limit (which is in 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," states the SEBI circular.

Derivative contracts on an index can now be introduced by stock exchanges if 80 per cent of the index constituents are individually eligible for derivatives trading. However, no single ineligible stock in the index can have a weightage of more than 5 per cent in the index. The index on which futures and options contracts are permitted will be required to comply with the eligibility criteria on a continuous basis, according to the market regulator.

The circular issued to stock exchanges clarifies that if the mark to market margin/settlements (MTM) for derivative contracts is not collected before the start of the next day's trading, the exchange is required to collect correspondingly higher initial margins to cover the potential for losses over the time elapsed in the collection of MTM.

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