SEBI Issues New Eligibility Criteria On Physical Settlement Of Stock Derivatives

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On Friday, the Securities and Exchange Board of India (SEBI) issued a circular in relation to the physical settlement of stock derivatives. The new regulation will allow physical settlement from the new expiry cycle in addition to the existing schedule of stock derivatives.

SEBI Issues New Eligibility Criteria On Physical Settlement Of Stock Derivatives

Stocks that witness an intra-day movement of 10 percent or above on ten or more occasions in the previous six months/three or more occasions in the last one month, can qualify for the physical settlement.

The other eligibility criteria for the stock also includes an intra-day movement of 25 percent or above on one or more occasions in the past month.

Additionally, if the daily volatility of the stock exceeds 10 percent either in equity or equity derivatives segment in the past one month, that stock shall be physically settled.

The daily volatility of a stock will be as estimated for “margining purpose”.

The regulator said, “exchanges shall review the above conditions on a monthly basis. Existing contracts on the stock, however, shall continue to follow the settlement mode as applicable at the time of contract introduction.”

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