SEBI proposes curbs on F&O stocks to prevent erosion of investors’ wealth

Our Bureau Mumbai | Updated on February 11, 2019

The recent spike in intra-day volatility in stocks that are part of the equity futures and options (F&O) segment has put market regulator SEBI on high alert.

On Monday, SEBI proposed to impose fixed circuit filters on stocks in the F&O segment on concerns “that investors’ wealth is getting wiped out in a single day by recent falls in stocks on which derivative products are available.”

Seeks suggestions

SEBI has issued a paper for public comments to tighten its rules on F&O stocks. It has proposed to cap the maximum daily movement up to 20 per cent for all stocks, including those in F&O. Further, it suggested a combination of dynamic and fixed price band or call auction mechanism. SEBI has also sought suggestions on whether it should continue with the current system. Also, it has sought public view on whether any measures are required at this stage or it could hamper free market and fair price discovery.

“In view of the recent abnormal intra-day price movements, suggestions are being made to review the rules to prevent such extraordinary price movements,” SEBI said.

According to SEBI, the examination of price movement of scrips, on which derivatives are available, during the last six months, revealed 40 scrips witnessed intra-day movement of over 20 per cent. Out of this, 29 stocks have seen intra-day movement between 20 per cent and 30 per cent.

A 60 per cent crash in the share price of DHFL in September, followed by another sharp fall in the same counter in February due to a Cobra Post expose, and the crash of YES Bank, Zee and a few other stocks have raised concerns in the market. Such falls have vitiated investor sentiment. In fact, since September 2018, the government has been asking SEBI to keep a check on cartels and short sellers on the suspicion that attempts are being made to crash the markets ahead of the Lok Sabha election, sources close to the regulator told BusinessLine.

Tab on NBFCs

SEBI may also keep a close tab on shares that have been pledged by promoters with non-banking finance companies (NBFCs) to see if there is a pattern among lenders to offload these shares. It has come to light that some company promoters had defaulted on their obligation to NBFCs, which are now offloading these shares.

In the F&O segment, price bands or circuit filters are generally not applied as these are forward contracts. At present, there are over 200 stocks in the F&O segment on the NSE.

Published on February 11, 2019

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