SEBI in its latest circular has revised the dividend threshold limit for adjustments in F&O contracts. The new limit is set at 2% of the market price down from 5%. The changes come into effect from June 29, 2022 onwards.
What does this mean?
Currently whenever a company announces dividend, if the dividend is more than 5% of market price of the stock it is considered as extraordinary dividend and results in adjustments in Futures and Options contracts of that security. This limit will now be 2% of the market price.
How is the adjustment carried out?
The adjustments in F&O contracts on account of corporate actions are carried out in such a way that the value of the position of the market participants, on the cum and ex-dates for the corporate action, shall continue to remain the same as far as possible.
This post explains the adjustment in case of extraordinary dividend with example of Vedanta:
NSE has explained the methodologies for adjustment for all types of corporate actions in detail here.