Risk containment measures, position limits and the broad eligibility criteria of Stocks and Index on which futures and options could be introduced.
Summary
This circular modifies the eligibility criteria for introducing stock and index derivatives based on market capitalization, liquidity, and position limits. It introduces risk containment measures including flexible mark-to-market settlement options and updated liquid asset definitions for clearing members. The document also establishes new market-wide and trading member position limits for single stock, equity index, and interest rate derivative contracts.
Text
A stock on which stock option and single stock future contracts are proposed to be introduced shall conform to the following broad eligibility criteria: The stock shall be chosen from amongst 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. The stock’s median quarter-sigma order size over the last six months shall be not less than Rs.1 Lakh (Rupees One Lakh). The market wide position limit in the stock shall not be less than Rs.50 crores (Rupees Fifty crores).
The Exchange may consider introducing derivative contracts on an index if 80% of the index constituents are individually eligible for derivatives trading. However, no single ineligible stock in the index shall have a weightage of more than 5% in the index. The index on which futures and options contracts are permitted shall be required to comply with the eligibility criteria on a continuous basis. The Exchange shall check whether the index continues to meet the aforesaid eligibility criteria on a monthly basis. If the index fails to meet the eligibility criteria for three months consecutively, then no fresh month contract shall be issued on that index.
Henceforth, the Exchange may offer a choice to the members to opt for payment of MTM – i) either before the start of trading the next day i.e. T+0, or ii) on the next day i.e. T+1. If the member opts for payment of MTM by T+1, then correspondingly higher initial margin shall be collected... to cover the potential for losses over the time elapsed in the collection of MTM.
It is clarified that for stocks which have a mean value of impact cost greater than 1%, in addition to the price scanning range, the minimum initial margin for single stock futures contracts and the short option minimum charge for stock option contracts shall also be scaled up by square root of three.
Units of money market mutual funds and units of gilt funds may be accepted towards cash equivalent component of the liquid assets of a clearing member. The unit shall be valued on the basis of its Net Asset Value after applying a hair cut of 10% on the NAV and any exit load charged by the mutual fund. The valuation or the marking to market of such units shall be carried out on a daily basis.
Equity securities classified under Group I in the underlying cash market... may be accepted towards liquid assets in the derivative markets. Securities classified under Group I shall be those which have traded atleast 80% (+/-5%) of the days for the previous eighteen months and which have a mean impact cost of less than or equal to 1%, for an order size of Rs. 1 Lakh. The equity securities shall be valued / marked to market on a daily basis after applying a haircut equivalent to the respective VAR of the equity security.
Units of all mutual funds may also be accepted as the securities component of liquid assets. The unit shall be valued on the basis of its Net Asset Value (NAV) after applying a hair cut equivalent to the VAR of the units NAV and any exit load charged by the mutual fund. The valuation or the marking to market of such units shall be carried out on a daily basis.
The market wide limit of open position (in terms of the number of underlying stock) on futures and option contracts on a particular underlying stock shall be lower of- - 30 times the average number of shares traded daily, during the previous calendar month, in the relevant underlying security in the underlying segment, Or - 20% of the number of shares held by non-promoters in the relevant underlying security i.e. free-float holding.
At the end of each day the Exchange shall test whether the market wide open interest for any scrip exceeds 95% of the market wide position limit for that scrip. If so, the Exchange shall take note of open position of all client/ TMs as at the end of that day in that scrip, and from next day onwards the members/ client shall trade only to decrease their positions through offsetting positions.
At the end of each day during which the ban on fresh positions is in force for any scrip, the Exchange shall test whether any member or client has increased his existing positions or has created a new position in that scrip. If so, that client shall be subject to a penalty equal to a specified percentage (or basis points) of the increase in the position (in terms of notional value). The penalty shall be recovered before trading begins next day.
The normal trading in the scrip shall be resumed after the open outstanding position comes down to 80% or below of the market wide position limit.
The trading member position limits in equity index option contracts shall be higher of: - Rs.250 Crore or - 15% of the total open interest in the market in equity index option contracts. This limit would be applicable on open positions in all option contracts on a particular underlying index.
You have read the preview. Create a free account to read the full document and see every order that applied it.
Free accounts include 10 searches/day with full text access.
Source: SecMarx — Risk containment measures, position limits and the broad eligibility criteria of Stocks and Index on which futures and options could be introduced.. Verbatim text is public record; SecMarx structuring (linkage to applying orders) is cited to us.