In November 2022, SEBI issued a circular introducing the net settlement of positions across the cash segment and F&O segment upon the expiry of stock F&O positions. This will be applicable from March 2023 expiry as per the announcement by NSE.
From March 2023 expiry onwards, any obligations in cash segment settlement and physical settlement of the F&O segment, upon expiry of stock F&O contracts, will be settled on a net basis as against the current approach where obligations are settled separately.
Since October 2019 all stock F&O contracts have been physically settled. If you hold a position in any Stock F&O contract, upon expiry, you are required to give or take delivery of underlying shares.
Under the current process, to give delivery of shares, you’re required to have sufficient shares in your holdings on the day of expiry. Not having shares to deliver results in short delivery and auction penalty which can be as high as 20%. While to take delivery of shares, you need to have sufficient funds in your trading account.
For example: If you have a 1 lot (250 quantity) short futures position in Reliance, you’re required to deliver 250 shares upon expiry. If you don’t hold sufficient shares in your holdings this will result in a short delivery and subsequent auction penalty.
Under the net settlement framework, if you have an open buy position of 250 shares of Reliance in the cash segment, the obligation to give delivery of shares in the F&O segment will be netted-off against this.
Similarly here’s how the net-off scenarios will work out for other positions:
| F&O Position | F&O obligation upon expiry | Cash segment net-off against |
|---|---|---|
| Long Futures | Take Delivery | Open sell position |
| Short Futures | Give Delivery | Open buy position |
| Long ITM Call | Take Delivery | Open sell position |
| Short ITM Call | Give Delivery | Open buy position |
| Long ITM Put | Give Delivery | Open buy position |
| Short ITM Put | Take Delivery | Open sell position |
The net-off of positions across the cash segment and F&O segment is applicable only if you hold positions with the same broker. Also, the net-off will not happen if the trading member (broker) clears trades through a different clearing member.
There will be no change in the way STT and Stamp Duty are levied. Both will be charged separately for F&O physical and Capital Market as per the existing mechanism.
Following this, the exchange has also discontinued the DNE (Do Not Exercise) facility.