New F&O rules open doors for JFS, Zomato's Nifty entry
What's the story
The Securities and Exchange Board of India (SEBI) has introduced significant changes to equity derivatives regulations, potentially enabling Jio Financial and Zomato to join the NSE Nifty 50 Index.
According to Abhilash Pagaria, head of Nuvama Alternative & Quantitative Research Analysis, if these firms enter the derivatives segment before mid-August, they could join the Nifty 50 in the September review.
The new rules also increase requirements for stock selection for futures & options (F&O).
Investment forecast
Potential passive fund influx for Jio Financial, Zomato, and Trent
Pagaria predicts that if included in the Nifty 50, Jio Financial could attract $466 million in passive fund buying while Zomato could gain $491 million.
The SEBI's new rules require a stock to have an average daily delivery value of ₹35 crore (up from ₹10 crore) in the last six months to qualify for the F&O segment.
Additionally, a market-wide position limit of at least ₹1,500 crore (up from ₹500 crore) is now required.
Regulatory framework
SEBI introduces measures to curb market manipulation
SEBI has introduced a product success framework to prevent market manipulation through illiquid securities.
If trading volumes remain low over a six-month period, the derivatives will be discontinued.
This move will strengthen the linkage between cash and F&O markets and enhance investor protection.
The decision by SEBI to revise F&O stock selection criteria addresses criticism about the inclusion of illiquid stocks.
Market performance
NSE and BSE lead in global F&O volume
Since the last review in 2018, market capitalization and turnover have significantly increased.
Currently, the National Stock Exchange (NSE) and Bombay Stock Exchange (BSE) lead globally in futures & options (F&O) volume, accounting for over 80% of global turnover in April.
The NSE traded 8,484 million contracts, the highest globally, while the BSE saw 2,224 million contracts.
The year-on-year growth for NSE was 92%, while BSE's F&O trading surged since May last year.