Exclusion of Zee Entertainment and Honeywell Automation from F&O

As per separate circulars during the week, the NSE announced the dropping of two stocks from F&O trading viz. Zee Entertainment Ltd and Honeywell Automation Ltd.

Zee Entertainment Ltd

Zee Entertainment is the media flagship of the Subhash Chandra owned Essel group. It has been a pioneer in digital and cable television in India and has been into the DTH business through its arm, Dish TV. The company had run into financial problems about 4 years back due to the guarantees that the company had given for its group infrastructure companies. After a bout of pledged shares selling by the financiers, the company promoters had diluted their own stake to repay the loans. However, now IndusInd Bank has recommended that Zee Entertainment to the Insolvency Resolution under the IBC.

The case pertains to the guarantees given by Zee Entertainment on behalf of Siti Cable, another group company for its loans from IndusInd Bank. After the loans became bad, the bank had tried to enforce the guarantees given, wherein the parent company had denied liability. To enforce the guarantee, Indus India Bank had sought to refer Zee Entertainment to insolvency under the Insolvency and Bankruptcy Code (IBC). Obviously, with the company being referenced to the IBC, its continuation of contracts in the futures and options segment has become untenable. Hence, the stock of Zee Entertainment goes out of F&O.

Here is the process flows. On 23rd February, 2003, the NSE issued a circular intimating the investors and traders that no fresh contracts of Zee Entertainment would be introduced on the exchange post the completion of the F&O expiry for the month of February on 23rd February. However, these will not be applicable to the existing contracts of the March 2023 contract and the April 2023 contract that have already been opened and are currently showing as open interest on the exchange. Such contracts, will be permitted to continue till their respective expiry either in the month of March or April 2023, as the case may be.

Honeywell Automation India Ltd

Honeywell Automation India Limited (HAIL) is a $350 million plus technology driven security and automation company listed on the Bombay Stock Exchange (BSE) and the National Stock Exchange (NSE). The company, Honeywell Automation, was incorporated in India in the year 1984 with its registered office in Hadapsar, Pune. The company is a leader in providing integrated automation and software solutions. This includes process solutions and building solutions. In terms of product palate, it has a wide portfolio in environmental and combustion controls, as well as in sensing and control. In addition, Honeywell Automation also provides engineering services in the field of automation and control to international clients. Globally, Honeywell is a US based Fortune 500 company. In India, Honeywell Automation has more than 3,000 employees across its manufacturing and business locations in Pune, Bengaluru, Hyderabad, Mumbai, Chennai, Gurgaon, Kolkata, Jamshedpur and Vadodara.

As per circular issued on 23rd February 2023, Honeywell Automation was being removed from the F&O contracts as all the F&O stocks are required to meet the enhanced eligibility criteria, within one year of its announcement in April 2018. However, Honeywell Automation did not meet the enhanced criteria leading to its removal from F&O trading. Hence, no fresh F&O contracts will be permitted to be introduced on Honeywell Automation after the completion of the February 23rd Expiry. However, March 2023 and April 2023 contracts that are currently open can continue to remain open till their respective dates. Post the April 2023 expiry, there will not be any F&O contracts of Honeywell Automation remaining. Let us quickly look at what this enhanced eligibility criterial means.

Enhanced criteria for F&O inclusion

As per the SEBI circular issued in April 2018, all stocks to be eligible to continue in F&O have to meet the enhanced criteria as set down by SEBI. Here are the highlights of the enhanced criteria.

• The stock will only be chosen from the top 500 stocks in terms of average daily market capitalization and average daily traded value in previous six months on a rolling basis.

• The stock’s median quarter sigma order size over the last 6 months on a rolling basis should not be less than Rs25 lakhs.

• The market wide position limit (MWPL) of the stock shall not be less than Rs500 crore on a rolling basis at the milestone points

• Average daily delivery value in the cash market shall not be less than Rs10 crore in the previous six months on a rolling basis.

The above criteria have to be maintained for a regular period of six months, failing which the company is liable to be removed from F&O. Honeywell Automation was removed for not meeting these criteria.