How does the new physical settlement of stock derivatives work?


Is this applicable for all expiries of these 46 stocks starting July? Or this policy of early square off is limited to July F&O only?


We are starting with 4 days prior for this expiry, based on the outcome and feedback we can change the policy.


Everything on index derivatives are cash settled.


@vmm Along with everything else, we also currently don’t have clarity on how STT/Stamp etc will be charged (as per F&O or as per delivery, and on what legs). The issue here is, a client can trade and take out all the money, we might get a notice to pay the differential amount in terms of money on a future date. We can’t collect more tax and not pay it, so right now we are forced to take this conservative stand. We will take a call on this after a couple of expiry once everything settles down.

Also the reason for 4 days before expiry is to ensure we are not stuck in an illiquid option contract of this stock. Most of the stocks which have been moved to physical delivery currently have low liquidity.

  1. Positions will be squared off monday evening.
  2. Everything will automatically be marked for no delivery (whichever strikes we can) if anything held till the last day.
  3. Still waiting on clarity on this from the exchanges.


@nithin @siva
Can you help me with below position of mine? What should be done before auto-square off?


If justdial is in the list of mentioned 46 stocks then you have to close them by friday EOD, if not we will square off any time starting from monday. If you want you can initiate the same position for next month expiry.


There is huge difference is premium for the option prices in justdial. Also the strikes have become too ill-liquid.
Looks like if you let it till expiry I may either go in profit. But if I have to settle before friday EOD. I think I may or maynot find a seller, or they might price it high. This is very disappointing now


@siva Does the square off is also for the option buyers as well?


Physical Stock derivative settlement STT has been fixed @0.10% as per NSE circular released yesterday.

Anyway, this new derivative settlement has already resulted in Volume migration to the Top traded Contracts from this week’s Monday :+1:




Will the physical settlement applicable to future only or to options also


@nithin I dont think this 4 day gap will work out for option buyers

Most retailers are buyers in option

Next month contracts premium will be significantly higher

In that case, 4 day before expiry is too much.

What is the rationale for this much big gap?


It was already explained above, can go through it once.


@siva, lets say I have RCOM 5 PE option at 0.05 price. (RCOM being one of the 46 stocks in the list)

Now unless RCOM moves lower, this option will never have buyers and will never have liquidity.

So how would you square this off on Monday?

Also if you dont square off and RCOM crashes to 5 on Tuesday, this option may become worth 1 rupees. Then I may end up with physical settlement?


One of the many reasons to start closing 4 days prior is this. So,if buyer is not available on monday we may close on other days till thursday. By any chance if position is not closed, client is only responsible for any obligation. Also once option becomes ATM, theoretically counter party should be available and if it is auto squared then trade may result in higher slippage.

  1. If the squaring off is helpless against OTM money options, again what is the use of squaring 4 days before (Monday). The only risk you are saving is some extra contracts which become illiquid after Monday.

For futures, it doesnt matter people can rollover. But for options, it wont make sense in lot of trades to take position in next month. So basically lot of option writers may lose guaranteed profit, and even option buyers may lose profit on good positions for 4 days.

Would request here to consider 1 or 2 days before expiry.

  1. Also, why cant it be run like the program for MIS positions square off which runs at 3:20 pm everyday. Why cant FNO positions be squared off on Thursday (expiry day) at 3:20 pm. Those which are OTM wont be squared off and anyways wont be exercised so there should not be much issues.


My main concern being RCOM and JPASSOCIAT

One of the two most liquid securities, included in this list


Most of the brokers are closing on monday means it will be liquidity squeeze later on.

What if few are holding few hundred lots long on different scrips, picked up at 5 or 10 paisa far OTM and suddenly on last 1 or 2 days prior expiry turned to ITM? considering most brokers are closing all their client positions on or before monday it can lead to big risk if not properly handled.

If you can go through this thread, Nithin has already mentioned above what other reasons made us to conclude on this policy and he clearly stated that after seeing 1 or 2 expiries based on the outcome and required clarifications from regulators we will restructure on this 4 day prior policy.


Okay didnt knew it was common across brokers, thanks for your replies


Thanks for the reply @nithin and @siva
Can you please confirm in case of physical settlement, on what date does one need to have stock or funds in the demat/trading account to honor the settlement. I believe it has to be the expiry day (normally Thursday) but there is confusion in the market that it is 2 days before expiry.
I know since you will be auto squaring off open positions, there will be no need for physical settlement but it would be helpful if you could clear the air on this with the actual timelines for physical settlement with an example like if I need to deliver security on a short future trade.