SEBI Changes F&O Rules As Zomato, Jio Fin Eye Entry

Securities and Exchange Board of India changed the eligibility framework for stocks entering and exiting the equity derivatives segment in June 2024, opening the possibility of new additions including Zomato and Jio Financial Services.

The revised framework raised the minimum trading and position-size thresholds for stocks eligible for futures and options contracts. The changes were aimed at ensuring that stocks in the derivatives segment had sufficient market activity and liquidity.

Under the revised criteria, the Median Quarter Sigma Order Size over the previous six months was raised to Rs 75 lakh from Rs 25 lakh. The market-wide position limit was also increased to Rs 1,500 crore from Rs 500 crore.

The framework also raised the average daily traded value requirement to Rs 30 crore from Rs 10 crore. SEBI introduced a separate framework for assessing whether existing stocks should exit the derivatives segment.

The changes drew attention to Zomato and Jio Financial Services because both companies had grown substantially in market capitalisation and trading activity. Nuvama Alternative and Quantitative Research identified them among the stocks that could qualify for inclusion under the revised methodology.

Nuvama analyst Abhilash Pagaria said that if Zomato and Jio Financial entered the F&O segment before the third week of August, there was a high probability that both could qualify for the Nifty 50 review in September. The assessment was a market-research forecast, not an announcement by NSE or SEBI.

Nuvama's potential inclusion list also included IRFC, BSE, HUDCO, Titagarh Rail Systems, Patanjali Foods, Gland Pharma, Rail Vikas Nigam, Ircon International, Angel One and Nuvama Enterprises. The list represented stocks that analysts believed could meet the revised F&O criteria.

The revised rules also created a route for removing stocks that no longer met the required performance standards. Nuvama identified Balrampur Chini Mills, Can Fin Homes, Gujarat Narmada Valley Fertilizers, Bata India, Deepak Nitrite, L&T Technology Services, Dr Lal PathLabs and Sun TV Network among stocks facing possible exclusion under its assessment.

The possible Nifty 50 implications were linked to the index's eligibility requirements. At the time, Nuvama said Zomato and Jio Financial would need to first become eligible for the derivatives segment before they could be considered for inclusion in the benchmark index.

Market participants also focused on the potential passive investment flows if the stocks entered the Nifty 50. A June 2024 analysis by Mint, citing Nuvama, estimated that Jio Financial could attract $466 million in passive fund buying and Zomato $491 million if they were included. Those figures were estimates rather than confirmed fund flows.

SEBI subsequently formalised the revised eligibility criteria through its August 30, 2024 circular on entry and exit of stocks from the derivatives segment. The circular retained the higher Rs 75 lakh MQSOS and Rs 1,500 crore MWPL thresholds.

Zomato and Jio Financial were subsequently among the stocks brought into the derivatives market under the revised framework. The development also increased their eligibility for broader index consideration, although F&O inclusion itself did not automatically guarantee entry into the Nifty 50.