In the most important such exclusion drive in the current beyond, the National Stock Exchange, past due on Monday, said derivatives trading will no longer be allowed in 34 shares after their current month-to-month contracts expire on Jun 28.
“Out of a universe of 1900 stocks, only 159 will trade in derivatives. This will lessen liquidity and volumes. What will be left to exchange if this maintains,” said a mid-sized proprietary trader.
NSE’s flow came as the stocks have failed to meet the Securities and Exchange Board of India’s more desirable eligibility standards for stock derivatives.
In a bid to dissuade retail traders from the derivatives market, SEBI has brought approximately a slew of regulatory modifications, such as physical delivery of futures contracts of an inventory and tighter norms on the net really worth. SEBI has been trying hard to alter the Indian derivatives market, which money owed for most if not all of the buying and selling extent on Indian exchanges.
As part of the regulation, SEBI final April issued revised suggestions to determine whether or not an inventory turned into eligible for buying and selling within the derivatives segment. Under the new, stringent hints, F&O securities will need to have a marketplace-huge position limit of ₹500 crore, up from ₹three hundred crores earlier, and a mean zone sigma order size of ₹25 lakh.
The new tips will make certain that F&O shares with very low liquidity, and in some cases no liquidity, are pushed out of the futures & alternatives segment to keep speculators and fee manipulators at bay.
Brokers via Association of National Exchange Members of India (ANMI) will send illustration to SEBI saying the new tips may have a destructive effect on liquidity and volumes, said a NAMI member.
“Instead of fostering boom inside the markets and integrating coins and F&O segments, SEBI has superior the eligibility criteria. This under the brand new physical agreement regime is becoming a self-gratifying prophecy of decrease volumes and higher spreads, thereby making stocks ineligible for derivatives,” said an ANMI member who did now not wish to be named as they may be but to ship their representations to the regulator.
SEBI had additionally mandated physical shipping of stocks in a phased manner. The first 50 shares with smaller marketplace capitalization have been to transport towards a bodily agreement by April this yr, the following 50 in July, and the following 50 via October.
It isn’t always just ANMI and agents who agree with that the improved criteria for F&O are hampering the segment.
NSE inside the beyond twelve months has made several representations to the regulator on enjoyable the criteria and allowing a better wide variety of shares to trade in derivatives. According to NSE’s representations, a copy of which has been reviewed by way of Mint, unmarried stock derivatives must be introduced on top 500 securities.
“A liquid and strong derivatives marketplace induce liquidity inside the underlying cash marketplace,” said someone acquainted with the change’s thinking.
“Globally most markets permit derivatives contracts on single shares with none regulations. Both within the US and Europe more than 2000 securities have derivatives contracts. Now that Indian markets are transferring toward physically settled derivatives contracts for person stocks it could be prudent to introduce derivatives settlement on extra unmarried stocks,” stated NSE in considered one of their representations.
Rajesh Baheti, Managing Director of Crosseas Capital Ltd mirrors NSE’s perspectives. “When SEBI proposed obligatory bodily delivery of shares we welcomed it. We believed that with this, increasingly more stocks could be admitted to trading inside the F&O section. SEBI, rather than enjoyable standards for shares, made it stricter, for this reason creating a scenario where shares are getting illiquid and eventually going out of F&O phase,” said Baheti.
