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SEBI issues norms on derivative products

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MUMBAI, Dec. 18

THE Securities and Exchange Board of India (SEBI) today said stock exchanges can introduce stock options and futures for unlisted companies coming out with initial public offering if the net public offer is Rs 500 crore or more at the time of its listing in the cash market.

In a circular to the stock exchanges, the market regulator also said that derivative contracts on a new stock index shall be permitted if the stocks contributing 90 per cent weightage in the index are individually eligible for derivative trading as per the eligibility criteria. This requirement shall be applied only at the time of introduction of derivative contract on new indices.

SEBI has also done away with the condition of mandatory appointment of Chief Executive Officer (CEO) of the derivative segment and its clearing house. The stipulation of 100 per cent inspection of derivative trading and clearing members, by the derivatives exchange, in a year is also withdrawn. In turn, the quantum of members to be inspected would be linked to the cost and benefit of inspections and the level of activity of members.

The trading member position limits would be linked to market wide limit. For stocks, in which the market-wide position limit is less than or equal to Rs 250 crore, the trading member limit in such stocks shall be 20 per cent of the market-wide limit. For stocks, in which the market-wide position limit is greater that Rs 250 crore, the trading member position limit in such stocks shall be Rs 50 crore.

SEBI said the changes in the risk containment measures should be implemented before the list of eligible stocks is expanded or January 1, 2003, whichever is earlier.

It further informed exchanges that the derivative exchange/segment might select eligible stocks for introduction of stock option and single stock future contracts, applying the broad eligibility criteria specified and submit their proposal to SEBI for approval of the contracts.

The circular said if a stock fails to meet the eligibility criteria for three months consecutively, then no fresh month contract shall be issued on that stock. However, the existing unexpired contracts may be permitted to trade till expiry and new strikes may also be introduced in the existing contract months.

It said the exchange may compulsorily close out all derivative contract positions in a particular underlying stock when that stock has ceased to satisfy the eligibility criteria or the exchange is of the view that the continuance of derivative contracts on such underlying is detrimental to the interest of the market keeping in view the market integrity and safety. The decision of such forced closure of derivative contracts shall be taken in consultation with other exchanges where such derivative contracts are also traded and shall be applied uniformly across all exchanges, the circular said.

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