The Derivatives committee of Securities and Exchange Board of India (Sebi) is scheduled to meet on June 1 to discuss risk containment measures for trading in individual stock options as well as to fix the eligibility criteria for selecting the scrips on which options can be traded.
The meeting will also discuss the eligibilty criteria of the participants who will be allowed to trade in options.
With only slightly more than a month left for options to be introduced on the domestic bourses, Sebi has yet to make up its mind on who will be allowed to trade in options.
More From This Section
Full-time member on the Sebi board J R Varma said that while a large number of stocks might meet the eligibility criteria for option trading, they would prefer to start out with around 15 to 20 stocks which offer high liquidity in the market. "Not every stock which is eligible will go into the initial list," he said, pointing out that the 'comfort' factor in the market was very important. "Then as we go along, more stocks can be added to the list," he said.
However, it is a foregone conclusion that only those scrips which have ample floating stock will find favour in the initial list.
Going by this criteria, market sources said that only the old economy companies, which are highly diluted will be offered for options trading. So-called new economy firms with lesser floating stocks are more prone to manipulation due to this.
It is expected that the group would be finalising everything at this meeting. Varma said that nothing concrete has been decided about mutual funds writing options.
In general, mutual funds can trade in derivatives only for hedging and portfolio balancing purposes. This same criteria will hold true for trading in options as well.
"Writing options, does not automatically translate into speculative trading," Varma pointed out, adding that writing an option could give mutual funds a hedging advantage as well.
"Of course, a situation should not be created whereby the fund takes a speculative position in the scrip," he added.