SEBI adds to physical settlement schedule
11 February 2019 Mumbai
Image: Shutterstock
The Securities and Exchange Board of India (SEBI) has notified that stocks of heightened volatility will move to physical settlement in addition to the existing schedule of stock derivatives moving to physical settlement.
It was noted in SEBI’s circular that if a stock satisfies their listed criteria, then derivatives on such stock shall be moved to a physical settlement from the new expiry cycle.
The criteria includes stocks which witness 10 percent or more intraday movement on 10 or more occasions in the last six months or stocks which witness 10 percent or more intraday movement on three or more occasions in last one month.
Additionally listed in the criteria was stocks which witness 25 percent or more intraday movement on one or more occasions in last month, or, if the maximum daily volatility of the stock (as estimated for margining purpose) is more than 10 percent either in equity or equity derivatives segment in the last one month.
SEBI outlined that exchanges shall review the conditions listed in their circular on a monthly basis although existing contracts on the stock shall continue to follow settlement mode as applicable at the time of contract introduction.
This follows their circular in January that announced that stock derivatives which are currently being cash settled will move to physical settlement as part of an initiative to help promote securities borrowing and lending.
Exchanges have been directed to put in place proper systems and procedures to ensure a smooth implementation of physical settlement.
It was noted in SEBI’s circular that if a stock satisfies their listed criteria, then derivatives on such stock shall be moved to a physical settlement from the new expiry cycle.
The criteria includes stocks which witness 10 percent or more intraday movement on 10 or more occasions in the last six months or stocks which witness 10 percent or more intraday movement on three or more occasions in last one month.
Additionally listed in the criteria was stocks which witness 25 percent or more intraday movement on one or more occasions in last month, or, if the maximum daily volatility of the stock (as estimated for margining purpose) is more than 10 percent either in equity or equity derivatives segment in the last one month.
SEBI outlined that exchanges shall review the conditions listed in their circular on a monthly basis although existing contracts on the stock shall continue to follow settlement mode as applicable at the time of contract introduction.
This follows their circular in January that announced that stock derivatives which are currently being cash settled will move to physical settlement as part of an initiative to help promote securities borrowing and lending.
Exchanges have been directed to put in place proper systems and procedures to ensure a smooth implementation of physical settlement.
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