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NISM Certifications · NISM-Series-VIII: Equity Derivatives · Introduction to Clearing and Settlement System

Under the physical settlement framework for stock derivatives in India, which statement is correct for stock options and futures that expire in the money or remain open at expiry?

Stock derivatives open at expiry, and in-the-money stock options, are settled by physical delivery of the underlying shares under SEBI's framework. Index derivatives remain cash settled, but stock contracts create delivery obligations that the clearing corporation settles through the normal securities settlement process.

  1. AThey are settled by delivery of the underlying sharesCorrect
  2. BThey are always cash settled at the closing futures price
  3. CThey are settled by the clearing bank transferring gold
  4. DPositions lapse with no obligation

Explanation

SEBI mandated physical settlement of stock derivatives in a phased manner, so open stock futures and in-the-money stock options at expiry result in delivery of shares. Index derivatives remain cash settled. Lapsing without obligation is wrong because obligations arise.

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