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

Which statement about final settlement of stock options contracts on stock exchanges in India is correct under current SEBI norms?

Stock options are physically settled on expiry under SEBI's current framework. Positions open at expiry result in delivery of the underlying shares, whereas index derivatives continue to be cash settled. Hence settlement through physical delivery is the correct statement.

  1. AThey are cash settled on expiry at the closing price
  2. BThey are physically settled on expiryCorrect
  3. CThey are settled by cash on T+5 basis
  4. DThey are rolled over automatically to next month

Explanation

Under SEBI's framework, stock derivatives (futures and options) are compulsorily physically settled at expiry, with the delivery obligation arising in the underlying shares. Index derivatives remain cash settled. Cash settlement at closing price applies to index contracts, not stock contracts.

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