How will buy/sell prices and STT for physical settled settled stocks be calculated?

[Tarzan]

Was reading this on physical delivery of exercised contracts

How does the new physical settlement of stock derivatives work?

@nithin I saw this NSE circular which lists 46 stocks and that they will be physically settled. Could you please explain how will this exactly work and how do you see it impacting the derivatives and the cash market.

So if I am holding the compulsory delivery contracts until exercise, what will the buy/sell prices of my delivery trades be? Also STT calculations?

How will the same be calculated if I am having opposite positions exercising, and have not net delivery obligation.

[nithin]

@Tarzan

So if I am holding the compulsory delivery contracts until exercise, what will the buy/sell prices of my delivery trades be? Also STT calculations?

How will the same be calculated if I am having opposite positions exercising, and have not net delivery obligation.

Let me answer this by different positions that you might hold on to expiry.

1. Long futures
   Futures get settled on the settlement price on expiry day and the P&L gets added on your ledger. Post this, long futures position converts into buy stock holding position. You receive the stock after two days, but the trade date will be the expiry day and future settlement price will be the buy average price of the stock.
   Since this is a Buy futures position, you will have to pay 0.1% of the contract value as STT.

2. Short futures
   Same as above. Trade date is the expiry day, selling price of the stock from your holding is the settlement price of futures.
   No STT on this trade.

3. Long Calls
   Assume you had 1 lot (5000 quantity) of stock X calls with 100 strike bought at Rs 2. Stock closes at 103 on expiry.
   All options will get expired at 0 value.
   You will get 5000 shares of stock X with a buy price of 100 and trade date as expiry day.
   STT of 0.125% of contract value

4. Short calls
   All options expire at 0 value
   You will have to deliver 5000 shares. So sell trade date will be expiry day and strike price will be the sell price.
   No STT on this trade

5. Long puts
   All options expire at 0 value
   You will have to deliver 5000 shares. So sell trade date will be expiry day and strike price will be the sell price.
   0.125% of the contract value as STT on this trade

6. Short puts
   All options will get expired at 0 value.
   You will get 5000 shares of stock X with a buy price of 100 and trade date as expiry day.
   No STT on this trade

In case you have multiple positions which lead to net zero delivery obligation, each of these will be considered as separate exercises and STT applied. So for example,

If you had long futures and were short 102 strike calls at Rs 2. If you held this to expiry where the stock closed at 105. Following will happen

5000 buy stock at 105 (settlement price) - STT applicable
5000 sell stock at 102 (strike price) - STT not applicable

In net, there is no delivery obligation. But STT will be applicable.