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TMI BlogRisk containment measures and the broad eligibility criteria of stocks on which stock options and single stock futures could be introducedX X X X Extracts X X X X X X X X Extracts X X X X ..... dated July 28, 1999, Circular No. IES/DC/CIR-5/00 dated December 11, 2000, Circular No. SMD/DC/Cir-7/01 dated June 20, 2001 and SEBI Circular No. SMD/DC/Cir-10/01 dated November 2, 2001 for Exchange traded Index Futures, Index Option, and Stock Option Contracts, and Stock Futures Contract. The aforesaid circulars were addressed to SEBI approved Derivative Exchange / Segment and their Clearing House / Corporation (hereinafter collectively referred to as Exchange). SEBI had setup an Advisory Committee on Derivatives headed by Prof. J. R Varma to inter alia review the eligibility criteria of stocks on which stock options and single stock futures could be introduced. The Advisory Committee gave its recommendation in its report on Dev ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... quarter of a standard deviation. The Exchange shall be guided by the following for the purpose of calculating quarter sigma order size in a stock:- Quarter sigma order size shall be calculated by taking four snapshots in a day from the order book of the stock in the past six months. These four snapshots shall be randomly chosen from within four fixed ten-minutes windows spread through the day. The sigma (standard deviation) or volatility estimate shall be the daily closing volatility estimate which is also used for day end initial margin calculation in derivative contracts on a stock. For stocks on which derivative contracts are not traded, the daily closing volatility estimate shall be computed in the manner ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rter sigma order sizes, average daily market capitalisation average daily traded value calculated every month on a rolling basis for the past six month. Consequently, the procedure for introducing and dropping stock on which option and future contracts are traded shall be as follows:- Options and futures may be introduced on new stocks when they meet the eligibility criteria. If a stock fails to meet the aforesaid eligibility criteria for three months consecutively, then no fresh month contract shall be issued on that stock. However, the existing unexpired contracts may be permitted to trade till expiry and new strikes may also be introduced in the existing contract months. The Exchange may compulsorily close ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tes windows spread through the day. Clause 6(A) of Circular No. SMD/DC/Cir-7/01 dated June 20, 2001 and clause 7(A) of Circular No. SMD/DC/Cir-10/01 dated November 2, 2001 stand modified, in the following manner, by this present circular. For the purpose of computing worst scenario loss on a portfolio, the price scan range for stock option and single stock future contracts shall henceforth be linked to liquidity, measured in terms of impact cost for an order size of ₹ 5 Lakh, calculated on the basis of order book snapshots in the previous six months. Accordingly, if the mean value of impact cost exceeds 1%, the price scanning range would be scaled up by square root of three. This would be in addition to the requirement ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t of three and the scaling should be dropped when the impact cost drops to 1% or less. Such changes will be applicable on all existing open position within three days from the 15th of each month Exposure Limits Clause 6(G) of Circular No. SMD/DC/Cir-7/01 dated June 20, 2001 and clause 7(C) of Circular No. SMD/DC/Cir-10/01 dated November 2, 2001 stand modified, in the following manner, by this present circular. The exchange shall ensure that the higher of 5% or 1.5 (standard deviation) of the notional value of gross open position in single stock futures and gross short open position in stock option in a particular underlying is collected/adjusted from the liquid networth of a member on a real time basis. ..... X X X X Extracts X X X X X X X X Extracts X X X X
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