Review of Framework for Stocks in Derivatives Segment
Summary
This circular mandates the phased implementation of physical settlement for stock derivatives to improve market integrity. It introduces enhanced eligibility criteria, including liquidity and position limit thresholds, for introducing new or existing stocks into the derivatives segment. Stock Exchanges are directed to implement these changes through system updates and regulatory amendments.
Text
physical settlement of stock derivatives shall be made mandatory in a phased/calibrated manner.
A stock... shall conform to the following broad eligibility criteria: (i) top 500 stocks... (ii) median quarter-sigma order size... not less than ₹ 25 Lakh, (iii) market wide position limit... not less than ₹ 500 crore... (iv) Average daily delivery value... not less than ₹ 10 crore.
Derivatives on stocks... which meet the enhanced eligibility criteria... shall be cash settled until further notification, however such stocks, if they fail to satisfy any of the enhanced eligibility criteria for a continuous period of three months, shall move from cash settlement to physical settlement.
Stocks... do not meet the enhanced criteria shall be physically settled. Such stocks, however, shall exit from derivatives segment in case; (a) They fail to meet any of the eligibility criteria... for a continuous period of three months, or (b) They fail to meet any of the enhanced eligibility criteria after a period of one year...
After a period of one year from the date of this circular, only those stocks which meet the enhanced eligibility criteria shall remain in derivatives segment.
The risk management framework, settlement mechanism and other procedures of the cash segment shall be applicable when a stock derivatives devolves into physical settlement.
Stock which meet the enhanced eligibility criteria shall also move to physical settlement albeit in a phased/calibrated manner.
Exchanges are directed to put in place proper systems and procedures for smooth implementation of physical settlement... No new contract shall be issued on stocks that may exit the derivatives segment...
Stock Exchanges are directed to: a. take necessary steps to put in place systems... b. bring the provisions... to the notice of the stock brokers/clearing members... c. communicate to SEBI the status of implementation...
This circular is issued in exercise of the powers conferred under Section 11(1) of the Securities and Exchange Board of India Act 1992, read with Section 10 of the Securities Contracts (Regulation) Act, 1956...
Source: SecMarx — Review of Framework for Stocks in Derivatives Segment. Verbatim text is public record; SecMarx structuring (linkage to applying orders) is cited to us.