The F&O ban refers to the trading restrictions imposed by stock exchanges on certain stocks in the Futures and Options (F&O) segment. When a stock is placed under an F&O ban, it means that new positions cannot be created in the futures and options contracts of that particular stock for a specified period.

Stock exchanges and regulatory bodies, such as SEBI (Securities and Exchange Board of India) in India, impose these restrictions to manage excessive speculative trading activity, maintain market stability, and safeguard the interests of investors.

The F&O contracts of any stock enter the ban period when the open interest (OI) on it crosses 95% of the market-wide positions limits or MWPL. The ban is reversed only if the open interest falls below 80%.

The criteria for a stock to be placed under the F&O ban typically include:

Market-wide position limits: When a stock’s open interest (total outstanding positions) reaches a specified percentage of the market-wide position limits set by the exchanges.

Price volatility: Stocks experiencing extreme price volatility or abnormal trading behavior might be subjected to an F&O ban to prevent excessive speculation.

Regulatory directives: Regulatory bodies like SEBI may intervene and impose restrictions on specific stocks based on market conditions, trading patterns, or company-specific events.

During the F&O ban period, existing positions in the affected stock’s futures and options contracts can be squared off or unwound, but no new positions can be initiated until the ban is lifted.

Traders and investors need to stay updated on F&O ban lists published by stock exchanges to comply with these restrictions and adjust their trading strategies accordingly. The duration of the ban can vary and is usually lifted once the criteria for imposition are no longer met or when market conditions stabilize.