INSUBCONTINENT EXCLUSIVE:
Sebi, had announced its plan to mandate physical settlement in April last year, without giving timeline.Government will make physical
settlement of all equity derivatives contracts mandatory this year in a bid to reduce volatility and reinvigorate process of borrowing and
lending of stocks.The Securities and Exchange Board of India, or Sebi, had announced its plan to mandate physical settlement in April last
year, without giving timeline
The market regulator said in a statement Monday that change in rules will be staggered from April to October depending on market
capitalization of company.The move may curb excessive speculation in a market where derivatives trading is about 30-times that of cash
market, while adding to short-term volatility around expiration of contracts, on last Thursday of every month
The contracts are currently settled in cash, where seller doesn't need to deliver underlying shares."It is a very good thing to happen for
market," Purvesh Shelatkar, a senior vice president at Centrum Broking Ltd
"It will reduce volatility and unwanted extremist speculators."The volume in equity derivatives market to cash segment has increased from
on major domestic bourses -- BSE Ltd
and National Stock Exchange of India Ltd
-- to offer idle shares through clearing houses and earn returns
On other side, short sellers use this process to borrow stocks.The change in settlement isn't likely to affect rollover trades, where equity
contracts nearing expiry for month are carried forward to next month
Traders rolled over an average 71 percent of their futures linked to NSE Nifty 50 Index -- one of most traded contracts in country -- in
past six months, according to data compiled by Bloomberg.Here are comments from some analysts and fund managers:Venkat Subramanian (Infina
Finance Pvt.)"Short term impact will be negative on liquidity and trading volumes of derivatives
Hence there will be a higher impact cost."Viral Berawala (Essel Finance AMC)"This might lead to short-term uncertainty as market adjusts to
new mechanisms for settlement
After process settles, stock-specific volatility around expiry would reduce as holders would be positioned much in advance for physical
settlement." "Market participants might start following global practice of borrowing and shorting which would deepen share lending and
borrowing market."Deven Choksey (K.R
Choksey Shares Securities)"Along with delivery-settled trades, volume in share lending and borrowing will also grow and it will help
investors in truest sense to use stock options favorably for hedging." "We hope hyper-trading is supplemented with higher delivery volume in
This could lead to better depth and liquidity in markets and larger participation in mid-cap stocks."
