Move likely to help curb price manipulation

The Securities and Exchange Board of India on Monday hiked the benchmark liquidity level for any scrip to be eligible for trading in the derivatives segments, a move aimed at checking any manipulation by doing away with illiquid stocks.

Now scrips with a minimum trading volume value of Rs 10 lakh and market wide position limit (MWPL) or market capitalisation of Rs 300 crore would be eligible for entry into the Future and Options (F&O) segment, the SEBI said in a circular.

“In order to improve market integrity, it has been decided, in consultation with stock exchanges, to tighten the eligibility and exit criteria for stocks in derivatives segment,” SEBI said.

Meaningful F&O

The move is likely to help curb any manipulation in share prices and bring in more meaningfulness to the F&O segment, experts said.

Besides, it will enhance liquidity in the derivative segment, they added.

Currently over 220 scrips trade in the F&O segment on the NSE.

Of these, only around 100 scrips are likely to meet the new eligibility criteria set by SEBI, experts said.

“Through this move SEBI wants to ensure that only relevant stocks with good amount of liquidity is able to trade in the F&O segment and help curb manipulation,” SMC Global Securities Strategist & Head of Research, Mr Jagannadham Thunuguntla, said.

SEBI said the minimum Median Quarter Sigma Order Size, which indicates liquidity or order size in a scrip, requirement for introduction in derivatives segment has been revised to Rs 10 lakh, from Rs 5 lakh at present.

Also the MWPL, indicating the size of the company, has been raised to Rs 300 crore, from Rs 100 crore.

It further said scrips which fail to maintain a minimum MWPL requirement of Rs 200 crore would cease to be in the F&O segment. Earlier this limit was Rs 60 crore.

(This article was published on July 23, 2012)
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