Bourses can opt for European-style options: Sebi

Market regulator the Securities and Exchange Board of India (Sebi) today allowed domestic bourses to introduce European-style stock options, wherein positions can be settled only on the day of expiry, in contrast to the existing American format, where contracts can be squared off prior to the expiry date.

"In consultation with stock exchanges, it has been decided to provide flexibility to stock exchanges to offer either European-style or American-style stock options," the regulator said in a circular.

An official of the National Stock Exchange, which accounts for 99 per cent of trade in the F&O category, told PTI that it will take a decision on changing the option style, but refused to commit any timeframe.

A Bombay Stock Exchange (BSE) spokesperson declined to comment on the development.

Sebi has asked the stock exchanges to choose between the two styles. However, once they have chosen one of the styles, the bourses cannot switch over to the other without Sebi approval.

"After opting for a particular style of exercise, a stock exchange may change to another style only after seeking prior approval of Sebi," the circular added.

Globally, stock exchanges mostly follow American-style options and Sebi's move is aimed at providing variety to the bourses, analysts said.

However, "it is unlikely that there will be a big change in the F&O trades from the option given by Sebi," SMC Capitals Equity Head Jagannadham Thunuguntla said.

The total turnover in the F&O segment is Rs 2.06 lakh crore.

Sebi said the stock exchanges that plan to introduce European-style options will have to put in place proper systems and procedures for a smooth transition and also notify all market players one month in advance of the date of switching over.