The Hindu Business Line : NSE's F&O list: Inclusion criteria shocks brokers

THE National Stock Exchange's decision to introduce more securities for futures & options (F&O) trading has not found favour with many stockbrokers as they think the exchange has included many illiquid stocks and left out some liquid stocks.

Last week, the NSE came out with a list of 70 securities in which F&O trading will start in three phases. Out of this list, trading in 34 securities started from April 20.

Brokers told Business Line that the list released has several securities in which there is hardly any liquidity in the cash segment. "If F&O trading starts in these securities, they are unlikely to take-off as there will hardly be any takers for these," said a derivatives analyst with a domestic broking firm.

He said the stock exchange has left out some of the liquid stocks such as Steel Authority of India, Zee Telefilms and Larsen & Toubro.

An NSE official said securities are selected for F&O trading in consultation with the Securities and Exchange Board of India and no security is included without the regulator's permission.

But an NSE broker said he could not understand the logic in the criteria of excluding SAIL, Zee and L&T and including stocks such as Adani Exports, ABB, Divi's Laboratories and others.

A look at the trading pattern on the NSE's derivatives segment since April 20 (when 34 additional securities were included) shows that the turnover has fallen in subsequent trading days.

For instance, the total turnover, which was Rs 12,734 crore on April 20, declined to Rs 9,512 crore on April 21 and on April 22 it was Rs 10,553 crore. Even in the stock futures segment, the turnover declined from Rs 6,476 crore on April 20 to Rs 5,238 crore on April 21 and on April 22 it was Rs 5,814 crore.

Other than the liquidity criteria, several brokers have also questioned inclusion of securities that will not be traded after a few weeks or months. The securities in this category include IDBI Bank, which will be merged with IDBI and IDBI Bank as a legal entity will cease.

Similarly, the NSE had included Welspun Gujarat Stahl Rohren in F&O list, but in a separate notice issued, it said since the security is being suspended for trading due to merger with Eupec - Welspun Pipe Coatings (India), futures and options contracts in the security will not be introduced.

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