Circuit Filters on Non F&O Eligible Scrips In Index Derivatives
Circuit filters applicable on Stocks which are part of Index Derivatives but not trading in Derivatives Segments. SEBI has notified this change vide their Circular No CIR/MRD/DP/04/2014 Dated 06 Feb 2014. All Stock Exchanges have to implement this with effect from 17 Feb 2014.
As You are aware at present there is no circuit filter on stocks which are part of an Index Derivative though they are actually not traded in Derivative Segment. ( Refer SEBI Circular SMDRPD/Policy/Cir-37/2001 dated June 28, 2001. It directs all stock exchanges to implement appropriate circuit filters (Price Bands) on all stocks which are in rolling settlement except for the scrips on which derivatives products are available or scrips included in indices on which derivatives products are available).
Currently, if a stock is part of Index derivative it does not have circuit filter though it is actually not traded in fno segment. For Example take the stock POLARIS. It does not trade in derivative segment but still it does not have circuit filters. (Please note that all derivative stocks will have a 20% circuit built in the system to prevent punching of orders by mistake). This is because polaris is a part of CNXIT which is an index derivative traded on National Stock Exchange. So earlier as long as a stock is a part of any Index Derivative, No circuit filter is applicable on such stocks.
Now with the New SEBI directive, Circuit filters will be applicable on such stocks. This change on such stocks is wef 17 Feb 2014. Below is a list of stocks which are part of CNX IT index on National Stock Exchange of India (NSE). As can be seen only few stocks are actually traded in FNO segment but all these stocks have no circuit filter at present.
Many Stocks in the following list will be effected and will move from No Circuit filter category to Circuit filter category.
Further, such circuit filter will be for a maximum of 20% and usual bands of 2%,5%,10% and 20% are applicable subject to risk management practices followed in this regard. The move of change of such stocks from No Circuit Category to Circuit filter category is made to curtail excessive volatility and risk in such stocks. At present there is no way to manage risk in such stocks. For example there is no way to hedge by shorting such stocks in fno segment when there is excess movement beyond 20 percent. It causes undue risk to investors in such stocks. This move will help investors and traders to manage their risks efficiently in such stocks.
Source: www.sebi.gov.in