Market regulator the Securities and Exchange Board of India (Sebi) today allowed stock exchanges to go for both physical and cash settlement in futures and options (F&O) trading.
As of now only cash settlement is allowed by stock exchanges. With Sebi's new guidelines, bourses can now opt for physical settlement in F&O.
Under physical settlement, the derivatives contract has to be settled with the delivery of underlying shares, while in cash settlement change in the price of a contract has to be paid.
The regulator also gave the freedom to stock exchanges to introduce physical settlement in a phased manner. But the exercise has to be completed for all stock options and futures within six months of introduction.
Sebi's norms are based on the recommendations of the Derivatives Market Review Committee and in consultation with BSE and NSE.
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