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NISM Certifications · NISM-Series-VIII: Equity Derivatives · Legal and Regulatory Environment

Under SEBI's rules on derivatives contracts, which feature applies to stock options and stock futures that are physically settled in India?

Stock futures and stock options in India are physically settled at expiry under SEBI's mandate, meaning shares are delivered rather than cash being paid. Index derivatives, by contrast, continue to be cash settled, so claims of cash-only or index-only physical settlement are incorrect.

  1. AAll stock derivatives are settled in cash only
  2. BStock derivatives are settled by physical delivery of shares on expiry, as mandated by SEBI for stocksCorrect
  3. CPhysical settlement applies only to index options
  4. DStock derivatives are never settled at expiry

Explanation

SEBI mandated phased physical settlement of stock derivatives, so stock futures and in-the-money stock options held to expiry result in delivery of shares. Index derivatives remain cash settled, which makes the other options incorrect.

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