Eligibility criterion and risk containment
measures for options
on individual
stocks
SEBI Technical group on new derivative products met today to discuss
the eligibility criterion and risk containment measures for options on
individual stocks. After deliberations, it was decided that stocks, to be
eligible for options trading, should meet the following criteria:
- Stock should figure in the list of top 200 scrips, on the
basis of average market capitalization, during the last six months and
average free float market capitalization should not be less than Rs. 750
crore. Free float market capitalization means the non-promoter holding
in the stock; and
- Stock should appear in the list of top 200 scrips, based on
the average daily volume, during the last six months. Further, average
daily volume should not be less than Rs. 5 crore in the underlying cash
market; and
- Stock should be traded at least on 90% of the trading days,
during the last six months; and
- Non promoters holding in the company should be at least
30%; and
- Ratio of daily volatility of the stock vis a vis daily
volatility of index should not be more than 4, at any time during the
previous six months. Volatility estimates would be computed as per Prof.
J. R. Varma Committee report on risk containment measures for index
futures.
As per the above criteria, it is estimated that
initially 30 to 35 scrips would qualify for options trading. Final
selection of the scrips, for the options trading, would be made by the
exchanges with the approval of SEBI. The eligibility criteria would be
reviewed after a period of six months to examine whether in the light of
the experience, the list of eligible stocks could be
expanded.
It was also decided by the group that for initial period of six
months, stock options would be cash settled and after that exchanges would
move to physical settlement.
Group also decided to impose limit on the overall open interest in
stock options. It was decided that open interest in terms of number of
stocks should not exceed twenty times of the average of daily shares
traded, during the previous calendar month, in the underlying cash
market.
BSE and NSE informed that they are in a position to start trading in
the individual stock options by July, 2001.
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