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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 ..... ne 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 "Development and Regulation of Derivative Markets in India". The report of the Advisory Committee was placed on the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tock:- * 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 specified by Prof. J.R Varma Committee on risk containment measures for Index Futures. The daily closing volatility estimate value shall be applied to the day's ord ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing 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 out all derivative contract positions in a particular underlying when that underlying has ceased to satisfy the eligibility criteria or the exchange is of the view that the continuance of derivative contracts on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 of scaling up for the look-ahead period i.e. the time in which mark to market margin is collected. The guidance for computation of impact cost for an order size of ₹ 5 Lakhs is as under:- * Impact cost shall be calculated by taking four snapshots in a day from the order book in t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 0/01 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. For the purpose of computing 1.5 standard deviations, the standard deviation of daily logarithmic returns of prices in the underlying stock in the cash market in the last six months shall be computed. This value shall be applicable for a month and shall be re-calculated at the end of the month by once again taking the price data on a rolling basis for ..... X X X X Extracts X X X X X X X X Extracts X X X X
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