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

Which of the following best describes the settlement of index futures and index options contracts on expiry in the Indian equity derivatives market?

Index futures and options are cash settled on expiry. An index is only a number, not a deliverable asset, so the difference between the contract price or strike and the final settlement index value is paid in rupees rather than through delivery of shares.

  1. APhysical delivery of all index constituent shares
  2. BCash settlementCorrect
  3. CDelivery of a single representative stock
  4. DSettlement in gold

Explanation

Index derivatives cannot be delivered physically because an index is not a tradable asset, so they are cash settled at the closing value of the underlying index on expiry. Delivery of constituents is impractical, and no single stock or gold is used.

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