Physical settlement of stock derivatives : no need to panic

With refrence to recent SEBI circular regarding physical settlement of stocks.

Apart from raising the funds required to take single trade, I don’t think there is much setback for honest and eligible traders. I think sebi is finally cleaning the system.

If you had traded previously (a few years back or even till now) you would know some stocks were used as a betting and gambling tool, because there would utterly be no rhyme and reason for their movement. The steps taken by sebi will reduce the power of money on stock movements.

They are working on SLB (Stock lending and borrowing) scheme which I think will ultimately allow even those traders who don’t own stocks to hold FnO positions until expiry and borrow from lenders to settle their obligation. I think some kind of mechanism like this will evolve. I haven’t read anything about this in particular but putting together different information gained over time, I see this becoming a possibility in future.

I know people don’t actually read the circular themselves but just go about worrying, reading different opinions on websites/blogs/forums. Either they are new to the market or just casual traders who are in it just for a fast buck.

But if you read and understand the circular, I see it only as means to regularize the market. Remove illegal money and illegal trades. This should reduce volatility caused due to power of this money.

Physical settlement will actually benefit the companies also and benefit the economy overall because now people will trade to gain hold of dividend stocks at lesser price.

It also means that those stocks which are really not that much worth, where people trade only for making profit (take other people’s money) will get removed from the system and provide opportunity to other more worthy companies (stocks) to take part in this opportunity.

You see, when a stock price is moved only for the heck of it, to make profit, only two people get the benefit, the guy who had more money to move the stock price and the broker. No pun intended for the broker though.

In this system no value is created in the economy. Only the money shifts from one person to another person. In the long run, this kind of system will/may collapse the market/stock. As bonafide buyers will stay away from those stocks and as such stock will keep plummeting under the influence of money power, even though there may be chances for the company to rebound but can’t because people are not buying it’s stocks out of fear. And again, this fear was created because money power stole their hard earned money.

I am not any financial expert but I can remember things over time. What happened, how it happened and so putting it all together this is the picture I am getting in my mind. Please don’t bother if this all looks boring to you. Especially, if you have no interest in value creation, this post may look like boring. But in the long run this will be beneficial and healthy for everyone. India is growing, we too should grow up with it rather than blankly criticizing whatever SEBI does.

Can you @nithin please comment on this please. Also, regarding SLB and how it is going to work in the future when it may be implemented. I really would like to know your opinion on what I am thinking (my interpretation of this circular). How much right or wrong I am? Thank You :slight_smile:


Incredible, This is a great move by SEBI. One more move by SEBI to limit the panic at the time of depression.

Had written this earlier

Here is one of the reasoning behind this SEBI move. Today if you are an operator with access to unlimited amounts of cash/stock, you can keep shorting/buying F&O contracts to move the stock in a particular direction without having to worry about placing a counter trade.

So assume a stock with lot size of 5000 is at Rs 100. An operator can keep selling futures/shorting calls to move the price down of this stock. On the expiry day, since everything is cash settled, he doesn’t have to worry about buying it back. Essentially making it very easy to manipulate the price. But going forward on these 46 scrips and soon on all F&O stocks, the operator will have to cover his positions or give/take delivery by putting full money. I think it will become extremely tough for people trying to manipulate stock prices in such F&O scrips.

I think in the long run this is good, but it is going to be a pain in the short term until all processes fall into play. Stock lending and borrowing today isn’t really easy for people to participate in, so that has to be first sorted.


Even if a trade has access to lots cash/stk
Still they’re are rules which limit any trader to a max of 6% of total OI

Then how can they move the mkt that much?

sir you are awesome…

Not necessarily they will operate from only one account, a group of traders can form a syndicate and still move the stock, there can be many groups like this whose interests lie in few selected scrips.

Totally true. That’s how betting and gambling syndicates function. This group secretly passes information among them regarding target and book profit price before they start influencing the stock and ultimately trap gullible traders and newbies who don’t have any clue and close the trade. Thus skimming all the cash from these unsuspecting traders.

what is the rationale behind the zerodha’s policy that no new positions before 3 days. Its totally illogical. They are just aiding the option writers and forcing the buyers book the loss. Besides, we dont know how other brokerages are going to deal with this. If they allow trading even during these days then no point in continuing with zerodha. Usually the premium will be low during the last week of the series which helps to trade with less amount. Normally traders like volatility to earn money. Zerodha normally blocks trades even during volatile timings…like election results, some unforeseen situations… it happened few times before…

We know, it’s just that you don’t. Outrage shouldn’t precede facts. All the major brokers are following the 4 day rule.

Again facts! They’ve blocked leverage and order types, but not trading itself! You seem to be here with some agenda.

Plus there is this

@SBpat your logic is so myopic

SEBI doesnt stop the HFT traders, its not the retail traders who book profit and provide no value in the economy, its the HFT ppl who actually controls the market and they also pay no tax as they are the ‘market makers’ .So please stop this crocodile tears from SEBI it cares so much about the general public that it tries to clean the system and bla bla.


No special agenda… I just got the message about closing the positions and restricting new positions during the last 3 days then while searching the data on the same I got this link so just participated. No agenda to move no confidence motion against Zerodha… There are lot of issues wrt the new rule… But the thing is closing the positions 3 days before is just preponing the date of expiry …
Is broking firms are expecting that nobody will keep open positions on the due date??
what if any one really wants to keep the position for hedging??

And another point is, this stance is announced just now, now the big traders will try to keep the price stable till Monday and eat all the premiums as the trades should be closed by Monday.

Honestly, I don’t believe in something or someone just like that. It takes much much time and much much much effort to get noticed by me. And when I believe in something/someone I don’t change that emotion either, because of all the information and, time and effort I put arriving at the conclusion.

I could write my first post in much detail (backing it up with facts and info) but I am really tied up. (don’t have time). Owing to the effort and thinking I put in doing everything. I am kind of a perfectionist. I think that kind of sums it all up.

So if I say SEBI is doing something, either it does has done something, or if it is coming short on things, it will cover it for sure in the near future.

I am annoyingly optimist person and I just am not able to see any shortcomings in anything. To me everything is just an opportunity. If I see something good in something it gets expanded exponentially. And I just focus on that good. Rest is just chaff. So you either believe what I say or completely ignore it, as otherwise it may disturb your peace of mind. Because I don’t stop, I don’t accept a “no”. I find a way, until I do.

They will square it off. The general feeling I am getting is nobody is prepared for this and there are a lot of ambiguities around the charges etc.

Volumes seem to moving to next month contracts.

@SBpat ur perfectionism doesn’t work. I see that as over confidence. Your statements are myopic and one sided and its kinda sends a false information and one -sided view to the general public…
Its kind of -
Other than that, how was the play, Mrs. Lincoln?
(Mr.Lincoln was murdered during the play,. but since I am annoyingly optimist Mrs. Lincoln had sure enjoyed the play)
Its Kind of
Mutual Fund Sahi Hai
(Government is hell bent on making sure your investment is as risky as it can get. Government never EVER market for Fixed Deposit schemes, then what really happened that it started 'Mutual Fund Sahi Hai ’ ). It is equivalent to tell a lie 100000 times then it becomes the truth.
I hope you get my drift…

Hey buddy, this is free country. You hold onto your beliefs, I will hold onto mine. Nobody is king here. I have not forced anybody to believe anything. I have just presented my view in such a manner.

If it holds out to be true, you too will believe me next, else this is a very big world. Nobody knows even who lives next to their apartment (flat) door.

One more thing I would like to add about “Truth”. All lies require the support of atleast one truth. A lie cannot exist on its own. And, the truth about “Truth” is, that it doesn’t exist! Go figure!

@SBpat so now from ‘fact’ u changed to ‘belief’ .Why spread the mis-information man? State hypothesis as hypothesis rather than facts.

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Yeah, you win! Want the trophy?

@SBpat Dude its got nothing to do with win or loss… please understand its easy to get influenced in topics like trading/investing therefore please be responsible while spreading information. May be you intent was right, but hypothesis has to called hypothesis rather than facts. There are many novice traders including me. The world of investing in itself is duping in nature, last thing we need is to be influenced by the wrong ideas which seems right.

@nithin Will Zerodha square off short OTM options too on Monday after 12pm? If not, what happens if these OTM options become ITM during the last 4 days?