As we all know russia stock exchange is closed since feb 25. I was wondering what would happen to all the existing open stock options contract if something like this happened in India? Since I believe most retail accounts don’t have the full margin to settle it physically how would the settlement take place? Are there any written procedure or rules for this scenario?
Pinging @ShubhS9 to check if you aware of this scenario?
If something like this were to happen, all contracts will get settled based on the closing price of the last day the contract was traded. So in Russia, closing price of all stocks and index as on Feb 25th will be when all F&O contracts are settled.
Is this a risk?
Of course, it is, more than the trader to the brokerage firm. If a client defaults, the brokerage firm has to immediately put up for all the losses and then try recovering from customers. This is really the biggest reason for brokerage firms to exist, mitigate any concentration risk when there are black swan events. So in a way, a brokerage firm is like an insurance business earning small amounts of brokerage (or premium in case of insurance) but also taking a risk. On the day of the black swan event, if premium earned or networth > loss on that day, the brokerage can go bankrupt. I had written about this earlier
But in situations like these, the government can create exceptions to ensure no large institutions go down. Potentially even reversing all the open positions/trades as well. I wouldn’t be able to comment on up to what extent because we have never really such an event in India.