Can MTF stock holdings be used for physical delivery settlement against a Short Futures position at expiry?

F&O
1

Hi everyone,

I am looking to understand how physical delivery and margin handling work at expiry for a hedged cash-futures trade involving MTF.

Scenario:

  1. I buy 850 quantities of CG Power shares through MTF (Margin Trading Facility).
  2. Simultaneously, I sell 1 lot (850 qty) of CG Power Futures expiring in 2 days.
  3. I intend to hold both positions till expiry.

My questions are:

  1. Physical Delivery Eligibility: Since MTF shares are automatically pledged to Zerodha upon settlement, can they be used to fulfill the physical delivery requirement of the short futures contract at expiry?
  2. Manual Action Required: Do I need to unpledge/convert the MTF position to CNC (by paying full cash) before expiry to allow physical delivery, or will it result in a short delivery penalty if left untouched?
  3. Auto Square-off: If MTF shares cannot be used for delivery, at what time on expiry day will Zerodha’s RMS team auto-square off the short futures position if I don’t close it manually?

Looking forward to insights from the community.

Thanks!

2

Yes, can be used.
@popcornAJ Btw these shares needs conversion to CNC as MTF shares are pledged with us.

@Adarsh_Patil Can we get one support article for these, if not yet.

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3

If you hold the MTF shares in your demat account before expiry, on the day of expiry you need to convert the MTF shares to CNC. Then only will it be eligible for physical settlement. You should maintain 100% CNC margin for conversion.
On the day of expiry, if you hold any naked short position and need to avoid physical delivery, you can either exit the short position or you can buy shares using MTF, which will get netted off at the end of the day.

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4

If we maintain 100% CNC margin, will it get auto converted to CNC or do we manually have to convert to CNC?

5

We wont automatically convert. Client has to give the request for conversion via Console.

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6

Thank you for the detailed response!

Just to clarify one detail regarding Zerodha’s policy article:

Under section: Stock deliverable positions (Give delivery)⁷:
The article states that “pledged holdings in your demat account are debited towards meeting exchange obligations.”

Am I correct in understanding that this auto-debit of pledged shares applies ONLY to standard CNC holdings pledged for collateral, whereas MTF pledged shares MUST be converted to CNC first (by maintaining 100% cash margin) because of the underlying MTF loan?

Thanks again!

7

Yes, its correct.

8

Thanks @Ragavendran_M and @siva
That completely resolves my doubt.

@Adarsh_Patil @Himalay_Sharma Looking forward to that support article.

9

Hello, we’ve added the details in the FAQs. Please refer to the FAQ link, Link 2.