Markets regulator Sebi today decided to make physical settlement of stock derivatives mandatory in a phased or calibrated manner, a move that could bring some much-needed balance between equity cash and derivative segments.&nbsp

The regulator has strengthened the existing entry criteria for introduction of stocks into the derivative segment in line with the increase in market capitalisation since the last revision of the criteria in 2012, Sebi said in the circular.&nbsp

Accordingly, existing criteria like market-wide position limit and median quarter-sigma order size have been revised upward from the current level of Rs 300 crore and Rs 10 lakh, respectively to Rs 500 crore and Rs 25 lakh, respectively.&nbsp

An additional criterion of average daily deliverable' value in the cash market of Rs 10 crore has also been prescribed. The enhanced criteria need to be met for a continuous period of six months.&nbsp

"It has been decided that physical settlement of stock derivatives shall be made mandatory in a phased/calibrated manner," Sebi noted.&nbsp

To begin with, Sebi said that stocks which are currently in derivatives but fail to meet any of the enhanced criteria would be physically settled.&nbsp

However, such stocks would exit the derivative segment if they fail to meet any of the enhanced criteria within one year or fail to meet any of the current existing criteria for a continuous period of three months.&nbsp

Stocks which are currently in derivatives and meet the enhanced criteria would be cash settled. Such stocks if they fail to meet any one of the enhanced criteria for continuous three months will move from cash settlement to physical settlement.&nbsp

After moving to physical settlement if such stock does not meet any of the current existing criteria for a continuous period of three months, then it would exit out of derivatives.

An additional criterion of average daily deliverable' value in the cash market of Rs 10 crore has also been prescribed.

Markets regulator Sebi today decided to make physical settlement of stock derivatives mandatory in a phased or calibrated manner, a move that could bring some much-needed balance between equity cash and derivative segments. The regulator has strengthened the existing entry criteria for introduction of stocks into the derivative segment in line with the increase in market capitalisation since the last revision of the criteria in 2012, Sebi said in the circular. Accordingly, existing criteria like market-wide position limit and median quarter-sigma order size have been revised upward from the current level of Rs 300 crore and Rs 10 lakh, respectively to Rs 500 crore and Rs 25 lakh, respectively. An additional criterion of average daily deliverable' value in the cash market of Rs 10 crore has also been prescribed. The enhanced criteria need to be met for a continuous period of six months. "It has been decided that physical settlement of stock derivatives shall be made mandatory in a phased/calibrated manner," Sebi noted. To begin with, Sebi said that stocks which are currently in derivatives but fail to meet any of the enhanced criteria would be physically settled. However, such stocks would exit the derivative segment if they fail to meet any of the enhanced criteria within one year or fail to meet any of the current existing criteria for a continuous period of three months. Stocks which are currently in derivatives and meet the enhanced criteria would be cash settled. Such stocks if they fail to meet any one of the enhanced criteria for continuous three months will move from cash settlement to physical settlement. After moving to physical settlement if such stock does not meet any of the current existing criteria for a continuous period of three months, then it would exit out of derivatives.

Sebi to make physical settlement mandatory in phased manner

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