Nifty99000 100%

Sensex99000 100%

Article rating: No rating
Article rating: No rating
Article rating: No rating
Article rating: No rating
Article rating: No rating
Article rating: No rating
Article rating: No rating
Article rating: No rating
Article rating: No rating
Article rating: No rating
Article rating: No rating
Article rating: No rating
Article rating: No rating
Article rating: No rating
Article rating: No rating
Article rating: No rating
RSS

News

Sebi to make physical settlement mandatory in phased manner

Author: PTI/Thursday, April 12, 2018/Categories: Regulatory

Sebi to make physical settlement mandatory in phased manner

New Delhi - Markets regulator Sebi today decided to make physical settlement of stock derivatives mandatory in a phased or calibrated manner, a move that could bring some much-needed balance between equity cash and derivative segments.

The regulator has strengthened the existing entry criteria for introduction of stocks into the derivative segment in line with the increase in market capitalisation since the last revision of the criteria in 2012, Sebi said in circular.

Accordingly, existing criteria like market wide position limit and median quarter-sigma order size has been revised upward from current level of Rs 300 crore and Rs 10 lakh, respectively to Rs 500 crore and Rs 25 lakh, respectively.

An additional criterion of average daily deliverable' value in the cash market of Rs 10 crore has also been prescribed. The enhanced criteria need to be met for a continuous period of six months.

"It has been decided that physical settlement of stock derivatives shall be made mandatory in a phased/calibrated manner," Sebi noted.

To begin with, Sebi said that stocks which are currently in derivatives but fail to meet any of the enhanced criteria, would be physically settled.

However, such stocks would exit the derivative segment if they fail to meet any of the enhanced criteria within one year or fail to meet any of the current existing criteria for a continuous period of three months.

Stocks which are currently in derivatives and meet the enhanced criteria would be cash settled. Such stocks if they fail to meet any one of the enhanced criteria for continuous three months will move from cash settlement to physical settlement.

After moving to physical settlement if such stock does not meet any of the current existing criteria for a continuous period of three months, then it would exit out of derivatives.

After a period of one year only those stocks which meet the enhanced criteria would remain in derivatives.

Derivatives in financial markets typically refers to a forward, future, option or any other hybrid contract of pre- determined fixed duration, linked for the purpose of contract fulfilment to the value of a specified real or financial asset or to an index of securities.

Broadly, there are two types of derivative contracts -- futures and options. A futures contract means a legally binding agreement to buy or sell the underlying security on a future date, while options contract gives the buyer or holder of the contract the right (but not the obligation) to buy or sell the underlying asset at a predetermined price within or at end of a specified period.

This circular would come into force with immediate effect, the Securities and Exchange Board of India (Sebi) noted.

Besides, the exchanges have been asked asked to put in place proper systems and procedures for smooth implementation of physical settlement and take necessary action to give effect to this circular.

"No new contract shall be issued on stocks that may exit the derivatives segment, however, the existing unexpired contracts may be permitted to trade till expiry and new strikes may also be introduced in the existing contract months," it added.

Earlier in September, Sebi had issued a consultation paper asking market participants to submit their views on whether physical settlement should be done in a phased manner starting with stock options followed by stock futures.

Print Rate this article:
No rating

Number of views (84)/Comments (0)

rajyashree guha

PTI

Other posts by PTI
Contact author

Leave a comment

Name:
Email:
Comment:
Add comment

Name:
Email:
Subject:
Message:
x

Videos

Ask the Finapolis.

I'm not a robot
 
Dharmendra Satpathy
Col. Sanjeev Govila (retd)
Hum Fauji Investments
 
The Finapolis' expert answers your queries on investments, taxation and personal finance. Want advice? Submit your Question above
Want to Invest
 
 

Categories

Disclaimer

The technical studies / analysis discussed here can be at odds with our fundamental views / analysis. The information and views presented in this report are prepared by Karvy Consultants Limited. The information contained herein is based on our analysis and upon sources that we consider reliable. We, however, do not vouch for the accuracy or the completeness thereof. This material is for personal information and we are not responsible for any loss incurred based upon it. The investments discussed or recommended in this report may not be suitable for all investors. Investors must make their own investment decisions based on their specific investment objectives and financial position and using such independent advice, as they believe necessary. While acting upon any information or analysis mentioned in this report, investors may please note that neither Karvy nor Karvy Consultants nor any person connected with any associate companies of Karvy accepts any liability arising from the use of this information and views mentioned in this document. The author, directors and other employees of Karvy and its affiliates may hold long or short positions in the above mentioned companies from time to time. Every employee of Karvy and its associate companies is required to disclose his/her individual stock holdings and details of trades, if any, that they undertake. The team rendering corporate analysis and investment recommendations are restricted in purchasing/selling of shares or other securities till such a time this recommendation has either been displayed or has been forwarded to clients of Karvy. All employees are further restricted to place orders only through Karvy Consultants Ltd. This report is intended for a restricted audience and we are not soliciting any action based on it. Neither the information nor any opinion expressed herein constitutes an offer or an invitation to make an offer, to buy or sell any securities, or any options, futures or other derivatives related to such securities.

Subscribe For Free

Get the e-paper free