The Securities and Exchange Board of India (SEBI) on December 05, 2024, issued a consultation paper on the proposed framework for devolvement of In-The-Money (ITM) single stock option contracts into futures, 1 day before expiry, to mitigate the potential risks arising from sudden movement of Out-of-The-Money (OTM) option contracts to ITM option contracts near expiry in the context of physical settlement in the derivatives segment.
The following has been stated: -
•The proposal seeks public input on a framework to shift ITM single stock option contracts into futures one day before expiry, addressing risks arising from unexpected OTM options turning ITM near expiry. This change aims to mitigate potential settlement risks, particularly for physical settlement requirements.
•The context includes previous measures like the "Do Not Exercise" (DNE) facility and the introduction of net settlement for cash and derivative segments. Stakeholders are invited to comment on this proposal to ensure effective risk management.
•Public comments are invited on the proposal to devolve ITM single stock option contracts into futures one day before expiry, based on the VWAP of the stock in the last 30 minutes of the cash segment. This aims to address risks from sudden OTM-to-ITM option shifts near expiry. Comments are requested by December 26, 2024.
The detailed consultation paper is given in the document below.
