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34 F&O Stocks to be excluded – Impact and Full list
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NSE announced that 34 stocks will be excluded from the F&O segment for not meeting the enhanced eligibility criteria as set up by SEBI in April 2018. This is the consequence of these stocks not meeting the criteria which stated that "after a period of one year from the date of the circular, only those stocks which meet the enhanced eligibility criteria shall remain in derivatives segment"

Under the revised guidelines, F&O securities will need to have a market-wide position limit of 5 bln rupees, up from 3 bln rupees earlier, and a median quarter sigma order size of 2.5 mln rupees, up from 1 mln rupees.

Following is the list of stocks which will be excluded:

Sr. no.

Company Name

Sr. no.

Company Name

1

Ajanta Pharma Limited

18

Jet Airways (India) Limited

2

Allahabad Bank

19

Jain Irrigation Systems Limited

3

BEML Limited

20

Kaveri Seed Company Limited

4

Can Fin Homes Limited

21

The Karnataka Bank Limited

5

CEAT Limited

22

Mangalore Refinery and Petrochemicals Limited

6

CG Power and Industrial Solutions Limited

23

NHPC Limited

7

Chennai Petroleum Corporation Limited

24

Oriental Bank of Commerce

8

DCB Bank Limited

25

PC Jeweller Limited

9

Godfrey Phillips India Limited

26

Repco Home Finance Limited

10

Godrej Industries Limited

27

Reliance Power Limited

11

Gujarat State Fertilizers & Chemicals Limited

28

The South Indian Bank Limited

12

IDFC Limited

29

Suzlon Energy Limited

13

IFCI Limited

30

Syndicate Bank

14

The India Cements Limited

31

Tata Communications Limited

15

Indian Bank

32

TV18 Broadcast Limited

16

Infibeam Avenues Limited

33

V-Guard Industries Limited

17

IRB Infrastructure Developers Limited

34

Wockhardt Limited

 

NSE has stated that the contracts for new expiry months in these securities will NOT be issued on expiry of existing contract months. Though the existing unexpired contracts of expiry months April 2019, May 2019 and June 2019 would continue to be available for trading till their respective expiry and new strikes would also be introduced in the existing contract months. But no contracts shall be available for trading in the above mentioned securities w.e.f. June 28, 2019.

Following points are worth noting for this change:

1. Volatility in these stocks will increase as we get closer to June 28. Many arbitrage funds need to wind up positions in these stocks which can lead to enhanced volatility. Ongoing election results will only add to the scheme of things. Speculative positions (both long & short) in these stocks will also see gradual unwinding as we go along. Expect sudden buying/selling in these scripts. Additional caution required if one is trading them.


2. This is another step in dissuading retail participants in active participation in equity derivatives market. Earlier measures include physical delivery of futures contracts and tighter norms on net worth. We expect more securities to move out of the derivative segment in coming months (we are already down to 159 from peak of 215 F&O stocks).


3. Many of these stocks have extreme low liquidity – both volume wise and spread wise with higher impact cost than usual. Liquidity in options market gets even worse. This has increasingly led to price manipulation and speculators active. Regulator want to curb these activities.


4. The obvious losers from this move are the stock exchanges and brokers who have to bear reduced revenues from F&O trading. We are amid major regulatory changes in the stock markets and this will add more troubles to the bottom line.


5. The illusion of creating an efficient market by nudging investors towards cash market from F&O is an arguable one. We are seeing cornering of F&O positions towards weekly Nifty and Bank Nifty options by retail participants. Such kind of pushing is not good in the long run and will create even more imbalanced markets.

 

Note: Please do not consider this blog as a recommendation; it is purely for informative purpose only. The author(s) and Adroit research team may have some positions based on this analysis and may have recommended to clients. Please assume we are biased and do consult your financial advisor before taking any positions. There is no other relationship between the author(s) and Adroit research team; and the above company.

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